Is life insurance a smart investment?
Life insurance pays your loved ones once you die. So, do you really need it? It does not benefit you, anyway. Some people view life insurance as a necessity, while others don’t. Life insurance will protect the family and help you reach their financial goals. Depending on your situation, let‘s first discuss the benefits of buying life insurance. The benefits will depend on the kind of insurance policy you buy.
Advantages of life insurance
- Peace of mind – life insurance saves your loved ones from financial hardships caused by your death. It would help if you did not worry about how your family will eat, take kids to school, pay for health insurance, and more. You will have peace of mind that your loved ones will be safe even in the event you pass away unexpectedly.
- Expanding your financial portfolio – life insurance comes as cash value components that increase your net worth. It is like putting money in an investment or savings account for a rainy day. You are even free to take a loan using your life insurance.
- Tax benefits – life insurance gives you two tax benefits:
- Tax-free death benefit payout – death benefit payouts are tax-free. If you have a high worth real estate, buy life insurance, and the government won’t take a massive cut from your real estate. The beneficiaries won’t pay taxes from the money they receive from the policy.
- Tax-free cash value growth – for a cash value policy, all the interest your account earns will grow without you needing to claim it from your taxes. You can access your cash by borrowing it from this tax-free account.
- Life insurance is unlike the 401(k) plans. You can borrow from your plan and pay back without expenses. If you use 401(k) plans, you need to pay a 10% penalty. You also must pay income taxes on the money you withdraw from both plans, though.
- Flexible financial security – your loved ones can use the money to buy food, send kids to college, and pay mortgages. The universal life insurance will allow you to adjust your premiums and the death benefits as required. A term life policy that has a conversion option will enable you to extend your life insurance and offer lifetime coverage. Some riders can allow you to take an amount from the policy in case of a terminal illness.
- Affordable coverage – it is common for people to overestimate the cost of life insurance. Some believe it costs 3-5 times the actual price. Truth be told, life insurance is quite affordable. This, however, depends on the policy you choose. Term life insurance is cheaper than the whole. There are still inexpensive options for pre-existing conditions and seniors. Some offer low rates for diabetic persons.
- You can keep most of these policies up to the age of 120, so long as you pay the premium – under permanent life insurance, you don’t lose the coverage under a set number of years. For a term policy, it ends when you end your term, commonly at 65 or 70 years. No one will need your death benefit when you are 120. The heirs might have even passed away or are self-sufficient.
- It is possible to exchange a life insurance policy for another life insurance policy e.g., annuity, without being taxed.
- Cash withdrawals up to the total premiums are treated as First-In-First-Out (FIFO) and are generally tax-free.
When should you start investing in life insurance?
Start as early as possible
It’s best if you start planning soon enough for your life insurance. The older you get, you become less qualified to get one. Your health becomes unpredictable as you age as well. Deals are cheaper when you are younger. You also enjoy better options like the death rider.
Helps to buy various options
Life insurance presents great deals and profits in a variety of policies it presents. The more you invest on those policies, the more benefits you get. You can invest for as long as you want and achieve your goals later on. Contact your financial experts for consultation.