Especially for those of us just beginning our journey to financial literacy and wellbeing, many of us have the urgency of a sloth when it comes to considering de benefits of life insurance. Life insurance is at the bottom of our to-do list (well, if it even makes it onto the to-do list). It seems like something we should worry about once all other aspects of our financial life have been figured out.
A study carried out by Princeton found that only around 35% of 18 to 19 year olds, 23% of unmarried people, and a small share of lower income individuals have life insurance. Unsurprisingly, most people surveyed cited the cost of policies, their youth, and their current health as their primary reasoning for not buying.
However, while it might seem logical to view life insurance as yet another expense, experts recommend reframing life insurance as an investment and considering it to a priority, even if you don’t earn as much as you’d like. Unlike other types of insurance that protect against possible disasters, accidents, and calamities, this type of insurance protects your family from the financial fallout of an inevitable life event.
As you decide if it’s worth it, consider the following three benefits of life insurance.
1. Protect your loved ones
The primary reason why life insurance exists is to protect your loved ones if something should happen to you. When the insured party passes, a life insurance policy requires that the insuring company pays a guaranteed death benefit to the beneficiaries specified on the policy.
If you should pass without financial arrangements in order, you will likely create financial chaos for your loved ones. Beyond funeral expenses, your lost income, student and consumer debts, mortgages, and any other financial obligations can put your family in a tight spot. A life insurance policy can prevent these worst case scenarios from coming to pass.
2. Buy strategically
When you’re young, healthy, and single, life insurance might not seem to be an urgent matter. However, as we age, grow our families, make major financial commitments, experience serious illness, and undergo other significant life changes, life insurance may begin to seem more appealing.
When it comes to buying life insurance, some experts recommend that the younger you are, the better. This is because this type of insurance is “age-banded,” meaning that how much a policy costs is related to your age. In other words, the best time to buy your life insurance policy was yesterday, and the next best time to buy is today.
Purchasing life insurance while you’re still young and healthy may allow you to find a cheaper premium. Furthermore, once illnesses appear, you age, and you find yourself with more dependents, your plan options are likely to be more limited and more costly.
So, while it may seem counter-intuitive, buying life insurance before you have any real, urgent need for it is actually the most strategic financial move. Before deciding which type is best for you, read our article on the differences between whole life, term life, and cash-value life insurance.
3. Enjoy the living benefits of life insurance
While most people are pretty familiar with the concept of the death benefit of life insurance (i.e. when the insured person dies, the plan beneficiaries receive a payment from the insurance company), the living benefits of life insurance are not well-understood.
Aside from the payment that life insurance offers upon the death of the insured party, many policies also provide living benefits, which offer the policyholder financial perks that they can access throughout the course of their life.
For example, some policies work much like investments and offer dividends to the insured party depending on the company’s financial health. The policyholder can receive cash payments, funnel their earnings into paying off the policy, or purchase additional insurance. While receiving dividend payments isn’t guaranteed, many insurance companies have a long history of consistently paying dividends to policyholders.
Some life insurance policies can also be beneficial when it comes to taking out loans. Life insurance policies can be used as collateral for taking out a loan or you may even be able to borrow from your same insurance company. If you have the type of life insurance that allows you to take out a policy loan, you can expect numerous benefits.
For instance, you can skip the cumbersome loan application process and credit check, borrow with a low interest rate, and repay the loan according to a schedule you establish (or simply deduct it from your death benefit).
Although pretty enticing in and of themselves, dividends and loan access are just two of a number of living benefits of life insurance. Learn about additional benefits here.
Especially when you’re first dipping a toe into the ocean of financial know-how, life insurance might not seem that important. However, if you wait until you urgently need life insurance, to protect your family, your business, or another legacy, it will probably be harder and more expensive to purchase it.
As part of your long-term financial health, rethink life insurance as an essential investment in not only your future, but also your loved ones’.