Life insurance is one of the most important financial products that people can purchase. It provides a safety net for loved ones in the event of death, and can act as a tax-advantaged capital accumulation vehicle with access to a wide variety of allocation options.
However, many struggle with determining when life insurance is worth the investment. In this article, we will explore the different scenarios where life insurance is worth it. If you would like help in deciding what may be the best solution for your family or business White Swan can help.
This article is written as general education, and should not be considered as personal financial advice. If you would like personal guidance with life insurance, you can schedule a time to talk with one of our experts.
What is Life Insurance?
Before diving into when life insurance is worth it, it's important to understand what life insurance is. Life insurance is a contract between an owner and an insurance company. The owner, or payor, pays premiums in exchange for a death benefit that is paid out to the policy's beneficiaries upon the insured person’s death. There are various types of life insurance, which in general can be divided into term life insurance, which lasts for a limited time, or permanent life insurance, which can last for the entire life of the insured.
When is Life Insurance Worth It?
1. When You Have Dependents
If you have dependents, such as children or a spouse, who rely on your income, life insurance can be worth the investment. In the event of your death, your dependents will be left without your income. Life insurance can provide a replacement of that income for them to cover living expenses and other financial obligations.
2. When You Have Debt
If you have debt, such as a mortgage, car loan, or student loans, life insurance can be worth the investment. Your beneficiaries can use the death benefit to pay off outstanding debts, alleviating those financial burdens.
3. When You Own a Business
If you own a business, life insurance can be worth the investment. The death benefit can be used to buy out your business partners or to provide funds for the business to continue operations in the event of your death.
4. When You Want to Ensure Final Expenses are Covered
If you want to ensure that your final expenses, such as funeral costs, are covered, life insurance can be worth the investment. The death benefit can be used to pay for your final expenses, alleviating the burden from your loved ones.
5. When You Want to Leave an Inheritance
If you want to leave an inheritance for your loved ones, life insurance can be worth the investment. You can name your beneficiaries, who will receive the death benefit free of ordinary federal income tax, if there is a properly structured ownership and beneficiary arrangement. This can provide money for your loved ones to use as they may need.
An Overview of the Main Types of Life Insurance
As mentioned earlier, there are various types of life insurance. In general, they can be divided into term life insurance and permanent life insurance.
Term Life Insurance
Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years, at a level price. It is the most affordable type of life insurance and is ideal for individuals who need coverage for a specific period, such as when their children are young or when they have outstanding debt.
Permanent Life Insurance
Permanent life insurance can provide coverage for the entire lifetime of the insured. It may have higher premiums than term life insurance but may have the added benefit of building cash value over time. It is ideal for individuals who want coverage for their entire lifetime and may also want to build a cash value that they can use later in life.
Life insurance can be worth the investment If you have dependents, debt, own a business, want to ensure final expenses are covered, or you want to leave an inheritance. It's important to determine your needs and choose the type of life insurance that best fits those needs.
Make sure you have strong life insurance that will adapt to your changing needs. White Swan is a digital broker that can help you plan ahead for your future and get you up with the right policy, easier then ever before. To get started, request a personal plan online, or schedule a call with one of our industry experts.