Benefits of Life Insurance

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Benefits of Life Insurance

There are many benefits to having life insurance. Below are some of the most important features and protections offered by life insurance policies.


Most people use life insurance to provide money to beneficiaries who would suffer a financial hardship upon the insured’s death. However, for wealthy individuals, the tax advantages of life insurance, including the tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits, can provide additional strategic opportunities.


Avoiding Taxes

The death benefit of a life insurance policy is usually tax-free.4 It may be subject to estate taxes, but that's why wealthy individuals sometimes buy permanent life insurance within a trust. The trust helps them avoid estate taxes and preserve the value of the estate for their heirs.


Tax avoidance is a law-abiding strategy for minimizing one’s tax liability and should not be confused with tax evasion, which is illegal.


Who Needs Life Insurance?

Life insurance provides financial support to surviving dependents or other beneficiaries after the death of an insured policyholder. Here are some examples of people who may need life insurance:


Parents with minor children. If a parent dies, the loss of their income or caregiving skills could create a financial hardship. Life insurance can make sure the kids will have the financial resources they need until they can support themselves.

Parents with special-needs adult children. For children who require lifelong care and who will never be self-sufficient, life insurance can make sure their needs will be met after their parents pass away. The death benefit can be used to fund a special needs trust that a fiduciary will manage for the adult child’s benefit.5

Adults who own property together. Married or not, if the death of one adult would mean that the other could no longer afford loan payments, upkeep, and taxes on the property, life insurance may be a good idea. One example would be an engaged couple who take out a joint mortgage to buy their first house.

Seniors who want to leave money to adult children who provide their care. Many adult children sacrifice time at work to care for an elderly parent who needs help. This help may also include direct financial support. Life insurance can help reimburse the adult child’s costs when the parent passes away.

Young adults whose parents incurred private student loan debt or cosigned a loan for them. Young adults without dependents rarely need life insurance, but if a parent will be on the hook for a child’s debt after their death, the child may want to carry enough life insurance to pay off that debt.

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