Life insurance is a vital part of protecting your family from financial disaster after you pass away. However, many people do not have it and are unaware of its importance. Many people believe that life insurance is too expensive, so some opt for nonprofit insurance options.
A life insurance policy can help protect your family’s financial future after you die. Not only can having a policy protect them financially, but it can also serve as an inheritance. Below are some benefits of having life insurance.
- Payouts Are Not Taxed
If you die while your life insurance policy is in effect, your beneficiaries are entitled to a lump sum death benefit. This type of insurance is typically not considered income for tax purposes.
- Replace Income Or Pay Debts
Your life insurance benefits can help pay for various expenses your beneficiaries have, such as paying off debts or paying for college. It can also be helpful to pay the mortgage, rent, and utilities. A life insurance policy that’s equal to or greater than your annual income is a great way to help people who rely on you for support.
- It Can Pay For Your Funeral
Some life insurance policies can also be used to pay for certain expenses after you die. The average cost of a funeral in 2019 was $7,640. Despite having enough savings to cover an emergency expense, many Americans still do not have enough to cover a funeral budget. Some insurance companies offer final expense policies, which are usually low-cost policies. Having a life insurance policy will take the stress off of your loved ones when it’s time to plan for your funeral and handle matters the first few months after your death.
- Coverage Options For Terminal Or Chronic Illnesses
An endorsement can help you customize your life insurance policy. It can also give you access to some or all of your death benefits under certain conditions. Some policies allow people with a terminal illness to use their death benefit to pay for their care or other expenses.
- It Can Cover Retirement
The cash value can accumulate over time in addition to the death benefits provided by a policy. It can be used to pay for various expenses, such as a down payment on a home or a car purchase. Although it’s commonly believed that a life insurance policy can replace a retirement account, this is not the case. It’s also not as cheap as term life insurance.
- It Can Be Used As An Inheritance
Some people buy life insurance to leave their death benefit as an inheritance for their loved ones. Consult with your provider to learn how estate taxes can affect your beneficiaries.
- Pays For State Or Federal Estate Taxes
Depending on the laws in your state, your heirs may be required to pay an estate tax on the inheritance. Life insurance can help minimize this expense.
Even if you don’t have a lot of money, life insurance can help ensure your loved ones can still afford to live if you die. If you have family that counts on your income to survive, a life insurance policy can give you peace of mind knowing they will be alright if you pass away.