What are the biggest life insurance pros and cons?
Life insurance policies are often misunderstood. Many people assume that they do not need life insurance if they’re young and single. While it’s important to have life insurance, the reasoning behind it might not always be for providing for family and loved ones after your death.
There are several benefits to having life insurance policies that many people aren’t aware of. In addition, there are a few life insurance rip-offs to avoid when you’re applying for coverage.
Read on to learn the most important life insurance pros and cons.
The Positives
Most people are aware of the ways that life insurance can benefit a family if the policy-holder suddenly passes away. However, there are several other positives to having a life insurance policy that many people don’t even realize.
- Life insurance can cover mortgage payments A mortgage payment is a significant expense to shell out each month. However, having a life insurance policy can help protect this asset in the event of your untimely death. By having life insurance, your spouse or loved one can continue to pay for the home.
- Life insurance can protect your business. If you’re a business owner with staff that depends on you to keep their jobs, it’s beneficial to have a life insurance policy. Therefore, if the worst should happen, your business and your employees are safe from sudden loss. If you want to ensure that your business outlives you and your employees are protected, life insurance is the way to go.
- Life insurance can replace your income. If you’re an individual with a spouse, children, or other loved ones that rely on you for support, it’s important to have life insurance. Should you pass away, a life insurance policy can help keep your loved ones from hitting financial hardship.
- Life insurance can become a charitable donation. If you’re single, or you would like to have your life insurance payout go to a worthy charity upon your death, you can name the charity as your beneficiary. If the organization is aware of the fact that they have been named beneficiary in your policy, you can reap certain benefits.
- Life insurance can be an estate planning tool. If you’re a successful individual who has earned a fortune in your lifetime, your estate may owe the government upon your death. You can settle the money owed with a life insurance policy. This way, the rest of your estate can be distributed to the appropriate individuals.
- Your workplace might provide you with life insurance. If you work in a company that offers life insurance policies to its employees, you may have an advantage. Many companies cover some portion (sometimes a significant amount) of your premiums.
The Negatives
While there is plenty of good that a life insurance policy can do, it’s a good idea to be aware of some red flags you might run into during the process. Knowing what to look out for can help individuals avoid falling into life insurance pitfalls.
- No exam life insurance: For individuals who are either elderly or have a debilitating illness or other health issues, no exam life insurance can be a good option. However, if you’re young and healthy, you’ll want to ensure that you’re getting the best rates possible. When policies don’t require a life insurance medical exam, insurance companies can offer you less coverage than what you deserve.
- Purchasing plans from your standard insurance company: This might sound convenient, but for individuals who seek good rates, they must buy a policy from a company that specializes in life insurance. Avoid purchasing from a company that simply offers life insurance along with other insurance types.
- Trusting whole life insurance policies: Whole life insurance may sound like a great idea, but it usually comes with expensive premiums. There are also little to no returns on your investment. Additionally, the terms and conditions can be more complicated than those of term life insurance.
- Return of premiums: On paper, this sounds great. However, a return of premium rider might not be all it seems when it comes to opportunity costs. Paying extra for the return rider might not be worth it.
Types of Life Insurance
Of course, whether or not you’ve gauged the pros and cons of life insurance thoroughly will matter little if you don’t choose the right type of life insurance.
There are several different types of life insurance policies that you can purchase. Depending on your needs, it’s important to choose the type of policy that is right for you. Here are some examples of the different types of life insurance policies that you can purchase.
1. Term Life Insurance
Term life insurance is the most common type of life insurance policy. It is offered by most insurance companies and usually requires a relatively small premium each month.
This type of life insurance covers a limited period of time. For example, a 30-year term life insurance policy would cover you for 30 years if you were to pass away during this time frame. A 60-year term life insurance policy would cover you for 60 years if you were to pass away during this time frame.
You’ll be able to select your coverage amounts and premiums, which are guaranteed for a specific period of time. Upon your death, the amount you paid will be returned to you in full or partially depending on how much you paid for the policy and how long it has been since you bought it.
2. Permanent Life Insurance
Permanent life insurance is an insurance policy that can last for a lifetime. These policy types can cover you for your entire life or even longer.
The main difference between term life insurance and permanent life insurance is that while term life policies offer a death benefit payout for only a set limited period, permanent insurance offers coverage that lasts a lifetime.
Because of this, the price for permanent protection tends to go higher than term life insurance premiums. However, permanent life insurance coverage also offers other benefits to balance this out, such as tax-deferred cash value growth.
There are two types of permanent life insurance policies:
a. Whole Life Insurance: Whole life insurance is an investment type of life insurance that can pay out your death benefit at any time during your lifetime. You can invest money in whole life insurance policies and earn interest on your investments over time.
When you die, this interest is returned to the beneficiary or heirs in a lump sum payment, without reducing their future inheritance income by any taxable death benefits.
Because whole life insurance is an investment, this product may be a good option for some people if they’re looking for long-term returns on their money instead of simply receiving immediate benefits upon their death.
The whole life policy covers you for the rest of your life and will continue to pay out a fixed amount of money for as long as you live. This is great if you want to make sure that your family is financially secure even after your death.
b. Universal Life Insurance: Universal life insurance is a form of permanent life insurance that arguably combines both term and permanent options into one product. Universal life insurance offers the same guarantees as term and permanent options while also providing cash values and tax benefits upon your death.
Universal life insurance is similar to term life insurance in that it also covers a specific period of time. However, universal life policies typically have more coverage than term policies, making them more expensive in the long run.
The main difference between universal life insurance and whole life insurance is its adjustability. So long as there is money in the account, you are permitted to reduce or increase the amount of the death benefit that you are entitled to. You also get to choose to pay your premiums at any time, in any amount; with certain limits in place, of course.
So, if for some reason you need to reduce the premiums you have to pay, you can just adjust the benefits you gain from the universal life insurance policies. Furthermore, you can pay your premiums using the cash value accumulated from interest.
Conclusion: Life Insurance Pros and Cons
You’ve now learned the most important life insurance pros and cons. In addition, you’ve learned how to compare and buy the best life insurance policy for your needs.
Of course, there are many other aspects of life insurance that you should be aware of before purchasing a policy. For example, you can research online if there are any insurance company discounts or offers available to you.
Another important aspect is your needs. The key to choosing the right type of life insurance out of countless offered by equally countless life insurance companies is knowing what type of coverage is right for you.
Once you have a better understanding of what your needs are, you can go out and choose the right policy that will provide financial protection for yourself and your loved ones.
If you want a worthwhile life insurance policy, carefully examine your options. Have a professional walk you through the conditions listed in your quote. In conclusion, life insurance can be a great choice when the plan suits your individual needs.
