Life Insurance Benefits

Life insurance has some really good obvious benefits for those that survive when someone dies. Let’s take a couple of minutes and think about the abstract benefits of life insurance.

Peace of mind during a tragedy

With regards to the death benefit, this is probably the most important aspect of life insurance. Specifically, it allows an individual or family to really spend their time together during the grieving process without concern over how to pay for expenses.

It takes a couple of weeks usually to get a body prepared and put in the buried but that’s just the beginning of what those left behind have to go through. Are they going to stay in the same home or move? Does the surviving adult need to get a job? If so then who will take care of the kids if they aren’t old enough to do so on their own?

Coverage can boost retirement

Prior to dying whole, universal, and variable life insurance grow cash value which can be used to pay for expenses or as a means to invest. If interested in cash flow or income-producing assets that can significantly improve one’s retirement making passing away far less drastic financially speaking.

Creates certainty for purchaser

For the one buying the life insurance, it puts their mind at ease knowing those they love will be cared for after they pass away, regardless of it being old age many years from now or tragically in the short term. This can help relieve stress from that individual letting them focus on producing rather than worrying.

Pay final expenses

The most common understanding and use of a life insurance policy proceeds are used to pay for the final expenses of someone that’s passed away. This includes either cremation or a funeral. Other costs that may be paid for with the life insurance can be things like medical bills accrued prior to death, or estate costs.

Replace income

One of the biggest things that many spouses are left without if someone doesn’t have life insurance is a stable income. Life insurance policies can help to offset this especially if the spouse takes the installment or annuity option. This option would give the spouse a guaranteed income for a specified period of time, usually 5-40 years.

Pay off debt

One of the questions I often ask is “If your husband passed away would you want to stay in the home”? I would say that more than 50% of the time the wife says “No probably not”. Usually, they say that because it’s a large house and there’s a lot of upkeep on it.

If the husband passed away they would want to downgrade to something more manageable for her. Even in these situations where the wife would put the house up for sale, there are still other debts that the life insurance could be used to pay off. They could also pay off the mortgage if desired so that they could take the time they needed to sell the house for what it’s worth rather than having to fire sell the home which happens fairly often for those without life insurance.

Give to charity

If you are philanthropic by nature or nurture and really want to help out a cause but don’t have the funds to do so now, a life insurance policy can be used to fund that charity after you pass away. Simply naming the charity as your beneficiary will leave the proceeds to it.

I wrote about the consequences of dying without life insurance here, and share it with others.

What are living benefits?

The above explanation describes the benefits of life insurance after someone has passed away, but the following will describe the different benefits of life insurance while the owner of it is still alive.

Build cash value

If you pick a permanent life insurance policy then they have a component called cash value. Think of it like a savings account built into the policy where a portion of the premium goes and builds up over time.

Often times cash value building policies can create a death benefit that far exceeds what’s typical for term insurance policies. The cash value can also be used to purchase things, pay off debt, buy investments, or do whatever else you decide to do with it.

Life insurance riders

Term and permanent life insurance policies can have riders added to them. These riders add additional coverage or benefits to the policy. Common riders include accelerated death benefit(often referred to as living benefits rider), disability waiver of premium, long-term care rider, disability income, critical illness, and accidental death rider.

Accelerated death benefit rider pays out a portion of the life insurance death benefit to the policy owner while they are alive if they are diagnosed with a terminal illness and have under 24 months to live.

Disability waiver of premium rider waives premiums of the policy if the policy owner becomes totally disabled as explained in the rider. The duration depends on the company sometimes for a specified period of time or until a certain age.

Long-term care riders offer nursing home or in-home care assistance as you age. They are usually added more to permanent insurance options.

Disability income riders can be added to some policies instead of being a separate policy. If unable to work due to disability you would be paid a monthly income that replaces a portion of your normal salary. It may also help waive premiums normally paid towards your life insurance policy.

Critical illness rider pays the policyholder a specified amount of money to cover specific illnesses set forth in the rider contract.

An accidental death rider is an option that increases the payout of one’s life insurance policy in the event of an accident. Often times it will double the value of the life insurance death benefit for a very minor increase in premium. Not all accidents are covered however not all accidents need to cause death immediately. Examples include if you got in a car accident that caused death days later would still qualify, though exact details need to be viewed in the contract.

Life insurance can be a complex situation to figure out. With that in mind finding a qualified agent that is focused on helping you look at all the different options is a great way to navigate all the confusion.

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