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Is life insurance worth it?
Yes, life insurance is worth it. And we will spend the next ten minutes or so that it takes you to read this post on why.
In a previous post, we addressed the advantages and disadvantages of life insurance. You might also want to check that article out, as it covers similar ideas to what we will unpack here.
Further, in our article that covers Term vs. Whole Life Insurance, we spent a great deal of time dissecting the benefits of both kinds of life insurance types.
So, those articles would also be a good start for anyone wondering if life insurance is worth it.
Now before we get into specifics, let's talk about what life insurance is.
What is life insurance?
Our definition of life insurance would be two-fold. One, life insurance in its purest form is death insurance. If the insured dies, the insurer pays a lump sum death benefit to the beneficiary. Two, if you are terminally ill, life insurance provides accelerated death benefits that provide a valuable resource in life, that you can usually use however you want. So, life insurance provides a benefit in both life and death.
Life insurance is a contract between the insured and the insurer. The insured is often the owner of the contract, but not always. The contract is called a policy. So, life insurance is a legal document, whereby the owner contracts with the insurer to place insurance on the life of the insured for the benefit of the beneficiary.
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Is term life insurance worth it?
Term life insurance is a rip-off unless, of course, you die. You see, term life insurance is called "term" because the policy (i.e. the contract between the owner and the insurer on the life of the insured) ends upon the specified timetable in the contract. You can choose a 1 year term, also called annual renewable term, 5 years, 10, 15, 20, 25 and 30 year term.
For those who want an even longer policy but don't want permanent coverage, there is also 35 year return of premium life insurance available. With ROP, you pay into the policy for the duration of the term, but once the policy ends, the insurance company will return all your premiums paid.
Level term life insurance is a type of term coverage, where the premium and death benefit remain the same. Be careful here, because some companies say their product is "level" term life but in reality, either the death benefit or the premiums change. This slight of hand by certain carriers is what gives the industry a bad rap. And it is also a good reason why you should consult a non-captive life insurance agent, such as the team at TermLife2Go, when you are looking into your life insurance policy options.
In addition to level term, you should also consider convertible term life insurance. Generally, a conversion option is included in most term policies, but make sure. Some companies either do not offer it or it is actually a renewable annual term policy in disguise.
With convertible term life, your policy can be transformed into a permanent policy. So, if you have a term policy and you are diagnosed with a health issue that would otherwise disqualify you for life insurance, you simply convert your term life into permanent life insurance with no evidence of insurability required. You then have a permanent life insurance policy, even though you have some illness or disease that may be life-threatening.
Probably the biggest benefit of term life insurance is leverage. You pay a small fee and you get a large death benefit, particularly when you are young and healthy.
Term insurance allows you to tailor your death benefit to a specific event. For example, if you have a mortgage with 20 years left to pay, maybe a 20-year term insurance policy is the way to go. You youngest child is four, why not get a 15 or 20-year term policy so that your daughter is financially protected in case your income disappeared.
So, we spent a bit on why a term life insurance policy is worth it, but what about whole life insurance coverage?
Is whole life insurance worth it?
In a previous article, we listed out 13 benefits of cash value life insurance, which gives some great examples of why whole life insurance is worth it. But we want to address a couple of additional benefits that we did not mention in that article.
Is whole life insurance a good investment?
What makes for a good investment? Most people will say the return. And we would tend to agree. However, you also have to consider the value that comes with a product that includes guarantees. Whole life insurance has three primary guarantees.
The first is a guaranteed death benefit. If you die today, in 10 years, or in 50 years, whole life insurance provides a guaranteed lump-sum death benefit to your beneficiary. A lot of baby boomers are concerned about how they are going to be buried. As a result, many are buying burial insurance, which is a small policy that covers burial and funeral expenses. But what if they had the foresight to have bought a whole life policy, with an increasing death benefit, at a young age?
The second is a guaranteed level premium. Whole life insurance rates stay the same no matter how long the policy is in force. Further, limited pay life insurance is available, allowing you to make payments for 10 years, 20 years, or to age 65. Once your pay period ends, the policy is paid-up life insurance and you never have to make another premium payment again.
The third is guaranteed cash value growth. A portion of your premium goes into an interest-bearing account that compounds over time. The older you get, the more valuable your cash value is. Further, cash value growth help grow your death benefit, increasing your death benefit as you age. That way, when you die, you have the most life insurance possible.
Finally, although not guaranteed, whole life insurance provides dividends. You can use life insurance dividends to pay your premiums, earn interest with the carrier, cash out, or purchase paid-up additions. Paid up additions increase your cash value and death benefit.
Accelerated benefit riders
Another neglected benefit that makes life insurance worth it is accelerated benefit riders. You can find term life insurance that offers accelerated benefit riders. Most require that you are diagnosed terminally ill with less than 12 months to live. Upon being diagnosed, you can access a portion of your death benefit as a lump sum cash payment to use however you see fit.
Another form of living benefits are chronic illness riders. A chronic illness rider allows you to access a portion of your death benefit if you are diagnosed as being unable to perform 2 of 6 activities of daily living. Some companies also allow benefits to be paid for severe cognitive impairments, such as Alzheimer's Disease.
Critical illness insurance is another option. If you are diagnosed with a qualifying critical illness, such as heart disease or malignant cancer, you can access your death benefit early to get the money you may need to cover hospital bills, home modifications, in-home care, etc.
Finally, you can also get long-term care life insurance which provides the benefit of long-term care insurance and life insurance combined. Unlike chronic illness riders, with long term care insurance riders you can get monthly payments for up to 8 years, with some companies offering lifetime long term care benefits. Long term care costs are high, so having money coming in provides a huge benefit that makes life insurance with LTC definitely worth it.
Is disability income insurance worth it?
We would be remiss to mention disability income insurance. The reality is, you are much more likely to suffer a disability before retirement than die. If you are disabled, how will you provide income for your family?
Long-term disability insurance is a valuable asset that can provide an income benefit to help you stay solvent and avoid watching life pass you by. With the long-term disability income benefit you can pay your mortgage, other insurance policies, car insurance, stay out of credit card debt and avoid bankruptcy and foreclosure.
How it works is you take out a disability income insurance policy from one of the best disability insurance companies. You choose your benefit income amount, your benefit period and your elimination period. If you are disabled, you will need to wait out your elimination period, which can be 30 days, 60, 90, 180, 365 or 730 days.
Once your elimination period ends you begin receiving your long-term disability income benefit. You will continue to receive your income benefit for the duration of your disability or your income benefit period. You can choose an income benefit period of 2, 5, or 10 years, to age 65, to age 67, with some companies offering conditional coverage up to age 75.
One certainty we have in life is that life is uncertain. But you have the power and ability to protect your financial future, both while living and in death. Life insurance is the vehicle that allows you to do this. As with anything, start small; don’t bite off more than you can chew. But just don’t wait. Get covered today. Buy life insurance. Your beneficiary, and maybe even the future you, will thank you for it.
So what are you waiting for? Give us a call today to see what we can do for you!