So, why do people get life insurance? Buying life insurance creates a financial safety net that catches your family when tragedy strikes. It helps them cover immediate expenses, pay off debts, maintain their home, and secure their future -- transforming an unbearable loss into one they can at least survive financially.
As per Bankrate, more than half of Americans own a life insurance policy. However, most families remain vulnerable. If your family relies on your income for mortgage payments, everyday expenses, and loans, things can get tough when your paycheck stops.
Life insurance protects the life you've built and the people you love. Knowing why people get life insurance can turn the uncertainty into family protection.
Why Do People Get Life Insurance?
Life is a series of important milestones you experience. Inevitably, getting life insurance goes beyond simple preparation. Some of the benefits of life insurance include:
Protection of Loved Ones
If your family relies on you, life insurance offers financial security. When you die, your beneficiaries will get a lump-sum payment that is guaranteed to be paid in full.
This happens when you pay premiums in full and you have no outstanding loans. It's good financial protection that you can count on to be there for your family when they need it most.
Tax-Free Benefit
One of the life insurance advantages is the tax-free benefit. Your loved ones will be able to enjoy every cent you leave them.
When someone passes away and their family receives a life insurance payout, they don't have to pay taxes on that money. The IRS doesn't count it as income, which means the full amount goes directly to your beneficiaries -- no deductions, no tax bills to worry about.
Guaranteed Cash Value Growth
As you pay your premiums, your whole life policy builds cash value that grows. When your policy, you can use the money to:
- Pay off a mortgage
- Establish an emergency fund
- Supplement your retirement income
- Fund your child or grandchild's education
You don't have to pass away to enjoy your life insurance money. Just withdraw money you've put into the policy tax-free and use it.
Access Optional Riders
Optional riders are add-ons that customize your life policy for specific needs, but at an extra cost. You can use riders to:
- Buy coverage for your children
- Buy extra protection without more underwriting
- Pay your premiums if you become disabled
- Use part of the face amount to pay for chronic illnesses
These riders provide tailored security, but they will increase your policy's price. You can work with an agent at InsuranceHub to find a plan that matches your personal financial risks and family situation.
What Are the Types of Life Insurance?
The different types of life insurance you can get. These include:
Whole Life Insurance
Whole life insurance is permanent. Premiums stay fixed, and the policy builds cash value you can borrow against.
It's more expensive than term life insurance. However, it gives you guaranteed lifetime protection. If you want certainty and a savings component together with the death benefit protection, this is the policy for you.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance. It covers your whole life as long as you pay the premiums.
However, it is more flexible than a whole life policy. It gives you a choice to increase or decrease your death benefit. Additionally, you have the freedom to skip or adjust your monthly premium, with some limits.
Variable Life Insurance
Variable life insurance is a type of permanent life insurance that's riskier. Your money gets invested in the bonds, mutual funds, or stocks you choose. This allows for great growth potential, but with added risk.
Term Life Insurance
Term life insurance is more affordable and common than permanent life insurance. It offers coverage for a specific period, typically 10, 20, or 30 years.
You'll pay premiums, and if you die during this term, your family gets the death benefit. Once the term ends, you can renew a term life policy on a year-to-year basis.
What Death Is Not Covered by Life Insurance?
When you buy insurance policies, it's for family protection once you pass away. However, some deaths aren't covered by life insurance, such as:
- Death due to homicide
- Death due to suicide
- Death due to intoxication
- Death due to pre-existing health problems
- Death due to Involvement in hazardous activities
Most policies cover death due to natural causes or accidental death.
Frequently Asked Questions
Can I Cash Out My Term Life Insurance?
No, you can't cash out your term life insurance because it doesn't accumulate cash value. Unlike permanent policies that build savings over time, term insurance exists solely to offer a death benefit.
Term life policies don't have cash value because they're meant to cover a certain time period. When the term ends, coverage stops.
If you want to cash out on a policy, consider a permanent life insurance policy. They often offer both cash value and a death benefit. The cash value of this insurance policy grows over time as you pay premiums.
Can I Cancel Term Life Insurance and Get Money Back?
No, if you cancel your term life insurance policy, you will not receive a refund for the premiums you've paid. The coverage will end. Term insurance only offers pure family protection without a cash value or savings component.
To cancel your term life insurance, just stop paying your premiums. You can also wait for your policy to expire. If you have plans to cancel your policy, inform your insurance company.
What Happens If You Stop Paying Life Insurance?
When you stop paying your life insurance premiums, your policy will lapse and terminate. For term life insurance, the coverage ends immediately after a grace period of about a month. If you have permanent life policies, you may have options to use the accumulated cash value to pay the premiums.
Know Your Life Insurance Options
Why do people get life insurance? People pay for life insurance as a straightforward and powerful act of love and responsibility. It's about replacing uncertainty with certain financial security and family protection.
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This article was prepared by an independent contributor and helps us continue to deliver quality news and information.
