If you think you’ve got life insurance all figured out, then think again. Many people believe that it’s something you get to cover your beneficiaries financially when you pass, and that’s it. However, it turns out that life insurance is so much more than that – and there are loads it can do for you and your financial future. So join us for this life insurance guide as we bring you 5 things you probably didn’t know about life insurance.
1. There’s more than one type of coverage
Most people think of life insurance as coverage over a specific amount of time, usually between 10 and 30 years. If the worst happened in this period, your loved ones would receive a payout known as a death benefit. This type of life insurance is referred to as term coverage.
But a term policy isn’t the only type of life insurance available. There’s also group life insurance, which your employer usually provides. You can also get a permanent life insurance policy, which, unlike term coverage, doesn’t expire.
It lasts for as long as you pay into it, and the premiums stay the same throughout your entire coverage. Perhaps more importantly, a permanent life insurance policy offers financial benefits while you’re still alive. That’s a game-changer and completely changes the perception of life insurance.
2. It has a cash value
A permanent life insurance policy carries a death benefit for your loved ones if you pass, but it’s so much more. You can treat it like an investment account, building wealth for your future when you’re still alive.
There are plenty of investment types out there for US citizens, and life insurance is one of them. You just probably didn’t know it. How does it all work, you ask? Permanent policies have a cash-value aspect that accumulates over time.
The cash-value aspect grows on top of your original coverage. As a result, both the cash value and death benefit increase simultaneously, giving you financial freedom later in life and protection for your loved ones when you pass (which hopefully won’t be for a very, very long time).
You can access the cash value at any time, using it in retirement to pay for, well, whatever you like, really—seen a drop-top coupe you like? Dip into your accrued wealth. Want to use it to send your kids to college? You can do that too if you’re feeling more practical.
3. It’s tax-free
Did we mention that the cash-value aspect was tax-free? Now it’s time to really get excited at this point of the life insurance guide because you can access the money you save without paying anything in tax.
The majority of investments require you to fork out tax on your earnings. That’s not the case with a perm policy, as the money you take out is essentially a loan to yourself. Therefore, you don’t need to pay tax to yourself and can access it tax-free.
Then, after you pass, you’ll pay the loan off with your death benefit. And if that sounds like bad news for your beneficiaries, worry not. While your cash value is growing, so too is your death benefit, so you’ll still be able to leave a nice little nest egg to your loved ones.
4. Premiums that don’t increase
So we’ve got a cash-value aspect and tax-free earnings as benefits in this life insurance guide that you probably didn’t know about. Could it get any better? You bet it can. With a perm policy, your premiums stay the same–there are no price increases.
You’ll be paying the same amount at 21 as you are at 55, which isn’t something life insurance is known for. That’s because a temp policy sees your premiums increase once you renew because you’re older.
When it comes to perm coverages, however, you’re locked in for the long run. There’s no need to renew, and that means you’re paying the same price at 20, 30, 40, 50… well, you probably get the point by now. So if you’re in your twenties, now is a great time to lock yourself into a perm policy.
5. Pay for long term care expenses
Long-term care insurance isn’t cheap. But perm life insurance policies come with riders, such as covering you for long-term care expenses. As a result, you can combine specialty products that are accessible from your death benefit while you’re still alive.
That’s because there’s a built-in emergency fund to protect you and your family, including covering you for lost income because of severe health issues. With the right rider, you can essentially supercharge your perm coverage to cover all bases.
Instead of getting two plans with a temp policy and long-term care insurance, you can combine them both via perm coverage. It adds that extra peace of mind, knowing you’re covered should you be unable to earn an income after falling ill or injuring yourself.
In conclusion: Discovering the benefits of life insurance
It turns out that life insurance isn’t just a simple death benefit over a set amount of time. It acts as an investment vehicle where you can build wealth, access it tax-free, keep the same premiums and cover yourself against injury and illness. It’s a bit of an all-rounder and something you should definitely consider, no matter your age.