If you’re considering life insurance, you probably think of it as a way to cover the cost of your death. The average funeral and burial costs are between $7,000 – $12,000. That’s not a financial burden you want your family to take on, right?
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But were you aware that life insurance can have many other benefits besides burial costs?
Here’s what you should know.
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Life Insurance can Provide Living Costs for your Loved Ones
If you don’t have money to leave behind for your loved ones to handle the daily living costs, a death benefit can help them through those years.
Term life insurance can help you leave money behind for loved ones. Of course, the younger you are when you buy it, the more affordable it is, but even seniors up to age 80 can get it if they are in decent health.
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Term life insurance only lasts for a specific term, but if you die within that time, it gives your loved ones the death benefit to cover expenses in your absence.
Can Help Loved Ones get out of Debt
If you still carry a mortgage or have high-interest consumer debt, life insurance proceeds can pay off the debts, so your spouse and/or family don’t have to deal with the financial burden.
This leaves them with more money to handle the daily cost of living and other expenses without feeling destitute because of the debt on their shoulders.
Pay for a Child’s Education
If you still have children that haven’t gone through college, a life insurance policy can provide the funds needed to cover the cost if you die before they go to college.
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This can take the burden off your spouse and ensure your child has the money to pursue his/her dreams.
Permanent life insurance policies accumulate a cash balance. You may be able to use this cash balance to cover your premiums in your senior years.
If you don’t use the cash balance, it gets applied to the death benefits your loved ones receive. So, for example, if your policy has a $10,000 cash balance and a $50,000 death benefit, the insurance company only has to pay $40,000 out of their pocket to cover your death benefit since your account has $10,000 they can use.
However, if you use the cash balance to cover your premiums, you don’t have to use money out of your pocket to protect them. But, the death benefit your loved ones receive won’t be the full face amount. So, however much of the cash balance you use will reduce your death benefit by an equal amount.
Supplement Retirement Income
If your expenses in retirement exceed the money you saved, you can use your cash balance to supplement the earnings.
This often happens when seniors outlive their expectations. With life expectancies getting longer, many people live over 90 or even 100 but aren’t prepared financially for such a life. The cash balance of a permanent life insurance policy can offer a supplement.
However, use caution when taking cash withdrawals as they will incur a tax liability since the earnings grow tax-deferred. Always talk to your tax advisor before withdrawing from your life insurance policy.
Coverage for Chronic or Terminal Illnesses
Many insurance policies include a chronic or terminal illness rider. If you fall ill and it falls under the covered illnesses on your policy, you can cash in a portion of your death benefit and use it to cover your medical and living expenses.
Like most early withdrawals, this decreases your death benefit but can help you cover the high cost of medical care when you are ill.
Life insurance is much more than coverage for burial costs. Some people use their life insurance benefits throughout their lifetime. You can take an emergency withdrawal of a cash balance when you have unexpected expenses, supplement your retirement, cover medical bills, or leave a legacy behind for your loved ones.
Carefully assess your life insurance needs and try to predict every possibility of why you might need help in the future. No one has a crystal ball to determine what they might go through, but preparing for every worst-case scenario can help you enjoy your senior years in financial peace.