Why Buy Life Insurance? (An Expert's Look at the Benefits)

Life insurance is more than just a policy; it's a comprehensive financial planning tool offering numerous benefits that stretch far beyond its primary function. It's about making sure your family has sufficient financial support when you're no longer around to provide it. As John C. Bogle, the founder of The Vanguard Group, once said, "Don't look for the needle in the haystack. Just buy the haystack!" Life insurance is that haystack - a secure investment for a future you may not be a part of but one your loved ones will.

One of the most compelling reasons to buy life insurance is to provide crucial financial support to dependents when they need it most—after the policyholder's passing. When a family loses a loved one, especially a breadwinner, they are hit with a double blow: the emotional loss and a potential financial crisis. Life insurance steps in to fill this financial gap, offering a lifeline during a time of turmoil by providing funds to cover daily living expenses, settle debts, fund children’s education, and more.

"When considering the amount of life insurance to purchase, think beyond just replacing income. Factor in the costs of services the deceased person provided, future educational expenses, and any outstanding debts. The goal is to provide a cushion that helps your loved ones maintain their lifestyle and financial stability even in your absence." - Laura Adams, Personal Finance Expert and Author.

Here are 10 benefits that life insurance can provide:

Life insurance provides a safety net for your dependents, ensuring they have financial support after you're gone. For instance, consider a scenario involving a primary breadwinner with a non-working spouse and two young children. If the breadwinner were to unexpectedly pass away without life insurance, the surviving spouse would suddenly bear the financial weight of raising and providing for their children alone. With life insurance, however, the death benefit could replace lost income, ensuring the family maintains their living standards and the children can pursue higher education if they choose.

Life insurance can also relieve your family from the burden of your debts and final expenses. Consider a couple nearing retirement with a still unpaid mortgage. If one of them were to die unexpectedly, the surviving spouse may struggle to meet mortgage payments on a reduced income. A life insurance policy could provide a payout to clear the mortgage and other debts, eliminating this financial stress during an already challenging time.

Life insurance can also serve as an effective tool for inheritance and estate planning. Let's say a mother wishes to leave an inheritance to her two adult children but has little in the way of savings. A life insurance policy could enable her to leave a significant financial gift to her children, helping to secure their financial futures.

In the case of high net worth individuals, life insurance can be used strategically in estate planning. Suppose an affluent couple has a considerable estate that will be subject to estate taxes upon their death. A life insurance policy could provide the funds needed to pay these taxes, preventing their heirs from having to sell off assets.

Certain types of life insurance, like whole and universal life, offer a cash value component that can serve as an investment vehicle. For example, a young, high-earning professional who has already maxed out their other tax-advantaged retirement accounts might use a universal life insurance policy as another way to save for retirement. The policy's cash value can grow over time, providing funds that can be accessed later in life.

Life insurance can be a means of making a significant charitable contribution. A philanthropic individual with a modest income might not be able to make large charitable donations during their lifetime. However, by naming a cherished charity as a beneficiary on their life insurance policy, they could leave a substantial legacy to a cause they care deeply about.

Life insurance can be an essential tool in business planning. If a business owner passes away, the death benefit from a life insurance policy can help ensure the continuity of the business. It can provide funds to hire a replacement, buy out the deceased's share, or ease the transition until a stable phase is reached.

The cash value in a permanent life insurance policy can enhance your borrowing power. You can borrow against the cash value of your policy, often at a lower interest rate than conventional loans. This can be particularly useful in times of market volatility when you don't want to liquidate other investments.

For individuals who struggle with saving, a cash value life insurance policy can act as a form of "forced" savings. With each premium payment, a portion goes towards the cash value, which can be accessed in the future for any purpose.

You can structure a life insurance policy to supplement your income during retirement. The cash value component in a permanent life insurance policy can be accessed tax-free up to the amount paid in premiums. Some people "overfund" their policies to increase the cash value and provide a tax-advantaged income stream during retirement.

Finally, and perhaps most importantly, life insurance provides peace of mind. It's reassuring to know that you've taken steps to financially protect your loved ones after you're gone. Life insurance allows you to look ahead with confidence, knowing that your family can maintain their lifestyle and pursue their dreams, no matter what the future holds.

Each person's needs are unique, and different types of life insurance policies can address these diverse objectives. It's crucial to speak with a qualified insurance professional or financial advisor to understand what type of life insurance is best suited to your circumstances and goals.

MoneyGeek has created many guides to help you buy and learn more about life insurance. Find more information below.

• Best life insurance companies
• Cheapest life insurance companies
• Best life insurance for seniors
• Cheapest life insurance for seniors
• Best life insurance for young people
• Best no-exam life insurance

• How can you buy life insurance?
• How much does life insurance cost?
• Guide to Term Life Insurance
• Guide to Whole Life Insurance
• Term vs Whole Life Insurance

Understanding different life insurance choices can seem complicated. To make things easier, we've broken down the main benefits of Term Life and Permanent Life insurance. These are two popular types of life insurance, and we'll show how they can meet different needs, whether you're planning for your family's future or your financial goals.

1. Affordability: Term life insurance is generally much cheaper than permanent life insurance for the same death benefit amount. This affordability allows individuals to get substantial coverage when the need is greatest, often during their prime working years.
2. Simplicity: Term life insurance is straightforward - you pay premiums for a specific term, and if you pass away during that term, your beneficiaries receive the death benefit.
3. Income Replacement: Term life insurance is typically purchased to replace lost income during working years. This can provide a safety net for your dependents, enabling them to maintain their standard of living.
4. Debt Protection: If you have significant debts, such as a mortgage or student loans, a term life policy can ensure these debts are covered should something happen to you during the term.

1. Lifetime Coverage: As the name implies, permanent life insurance provides coverage for your entire lifetime, as long as the premiums are paid. This lifelong coverage is a significant advantage for those who want to ensure a death benefit for their heirs no matter when they pass away.
2. Cash Value Accumulation: Permanent life insurance policies have a cash value component that grows over time and can be borrowed against, providing a potential source of funds for various purposes.
3. Tax-Advantaged Growth: The cash value in a permanent life insurance policy grows on a tax-deferred basis, which can lead to significant accumulation over the long term.
4. Flexible Death Benefit: Some types of permanent life insurance allow you to adjust the death benefit (within certain limits) as your needs change over time.
5. Potential Dividends: Some types of permanent life insurance, particularly whole life policies issued by mutual insurance companies, may pay dividends. These dividends can be used to reduce premiums, purchase additional coverage, or left to accumulate interest.
6. Estate Planning: Permanent life insurance is often used as an estate planning tool. The death benefit can provide funds to cover estate taxes, keep a family business running, or leave a legacy for heirs or charity.

Remember, the best life insurance for you depends on your individual circumstances, financial goals, and the needs of your dependents. It's always a good idea to speak with a qualified insurance professional or financial advisor to discuss your situation and help determine the most suitable coverage for you.