Life insurance provides a financial safety net for your loved ones during your death. It can be a valuable investment, especially when purchased young.
Some life insurance policies also offer a cash value component that can be withdrawn or used to help fund retirement. However, this strategy may only be a good fit for some.
Benefits of Investing in Life Insurance
Life insurance as an investment is a controversial topic in the financial industry. Some fee-only financial advisors argue that it is expensive and there are better investment alternatives for consumers. Others, like the author of this NerdWallet piece, say that life insurance can provide diversification, risk management, and other benefits.
In addition to providing a death benefit, permanent policies also build cash value over time that can grow relatively consistently. The returns on this growth are generally income-tax-deferred and may be higher than other investment options.
Term life insurance doesn’t have a cash value component. Still, it can be used with a savings or investment plan to help cover costs likely to arise after your death, such as funeral expenses and outstanding debts. In these cases, a term policy can be a good option since it’s less expensive than a permanent policy. However, it’s essential to thoroughly discuss with your advisor to ensure you’re making the best choice for your unique situation and investment goals.
Benefits of Term Life Insurance
The death of a loved one can leave families with heavy financial burdens that they must cope with on their own. Life insurance Grayslake IL can ease these burdens by providing a lump sum of money that can be used to pay off debt, replace income, or cover funeral expenses.
Term policies offer a fixed death benefit for a set number of years at an affordable rate compared to other permanent life insurance options. This makes it a good choice for people who need life insurance but need more money to afford the higher premiums of whole or universal life policies.
Whole and universal life insurance also builds up cash value, which can be used for various purposes, including as a source of loans or withdrawals. However, any outstanding loans or withdrawals are deducted from the final death benefit paid to beneficiaries. Whole and universal policies also allow riders to change the policy’s basic features.
Benefits of Whole Life Insurance
Whole life insurance offers benefits that term life doesn’t, including lifelong coverage and a savings component. Part of your premium is set aside as cash value, accessible during your lifetime, and can be withdrawn tax-free if the amount you start doesn’t exceed the portion of your death benefit attributable to your premium payments.
Many whole-life policies also pay dividends, which can be used to reduce your annual premium costs. However, it may take decades for the death benefit and other investment returns on your policy’s cash value to outweigh what you’ve paid in premiums.
Choosing a financially strong insurer with an AM Best rating of B+ or higher is essential if considering whole life insurance. Given your family’s needs and goals, it’s also wise to think if the amount you’ll invest in full life insurance makes sense. Consult with a financial professional for help.
Benefits of Universal Life Insurance
Universal life insurance (UL) offers the flexibility of a whole life policy with a savings and investment component. It lets you change your premium within limits, and the cash value varies based on market conditions (though you get a minimum interest rate).
With an indexed UL policy, your base cash value may rise or fall due to the index’s performance, but gains are usually capped. This is why assessing your risk tolerance and investment goals is necessary before choosing this type of policy.
UL policies also allow you to access your death benefit while alive through an accelerated death benefit rider for certain terminal or chronic illnesses. This feature can help you pay for expenses not covered by your primary health insurance.
