Buying a life insurance policy has many hidden benefits to the investor as well as their beneficiaries. The most obvious reason that people obtain life insurance is to leave a legacy for their families. Late-life medical bills, funeral expenses, and lost income are just a few of the financial worries that life insurance can alleviate. While buying a policy for these purposes is noble in and of itself, there are actually plenty of additional reasons that obtaining a life insurance policy is beneficial to you— and at all stages of life.
Take a look at a few of the added benefits of maintaining a life insurance policy:
Cash access. As the cash value of your life insurance policy accumulates, you are able to withdraw the funds permanently or as a loan to pay for a variety of other things. You may end up needing the cash to pay for education expenses for your kids, to help fund your small business, or even in an emergency. Unlike a 401(k), you can more easily access money in your life insurance policy if you need to.
Flexibility in spending. As the value of what you’ve invested in your life insurance policy grows over time, you can pick several options for spending it if needed. You can convert it to an annuity to help with living expenses, or you can cash the entire policy out. You can also choose to take just some of the cash value and leave the rest as a death benefit.
Safe investing. Some investments are volatile and come with the risk of losing what you’ve invested along with any growth that the account has seen. That’s not the case with life insurance. You will always have access to the amount that you accumulate, no matter what is happening in the financial markets. It’s a way to put away guaranteed money for the future. Opening a life insurance policy is simply a good way to save money.
Dividend earnings. Life insurance policies can actually earn you money through interest that is distributed among policy holders, usually on a yearly basis. So you have a risk-free way to participate in the financial market without losing any of your own investment in the process. Bonus!
Tax benefits. A life insurance investment has tax incentives that apply throughout the duration of your policy. You will never have to pay income tax on your earnings, and neither will the beneficiaries. If you decide to take out a cash loan, there is no income tax applied to that money either. The tax incentives associated with earnings, withdrawals, and pay-outs on life insurance policies are much more attractive than other long-term saving options.
Lifelong insurability. As long as you continue to pay your premiums, you cannot lose your life insurance benefits, no matter what changes in your life situation. This is why people as young as their 20s are encouraged to buy a permanent life insurance policy to protect their insurability as they age.
While a life insurance policy provides peace of mind in terms of your family’s financial security if anything happens to you, it can bring financial stability before it’s your time, too. Obtaining a life insurance policy can open doors for plenty of other financially-savvy decisions over the course of your life, and leave your family with the finances to cope with your death when it does occur.
The subject of life insurance makes some of us feel uncomfortable, and reasonably so. Nobody likes to think about their own mortality, and nobody likes to think about their family member’s mortality. But it’s not about that—it’s about being proactive, prepared, and a wise money saver.