For many of us, getting life insurance is the last thing on our minds. What with all the monthly payments, including loans and mortgages, investing in life insurance seems frivolous. In addition, other reasons such as the expensive costs also prevent people from securing life insurance.
According to data on Statista, the number of adults in the US that have life insurance in 2020 went down to 55%. This is in stark contrast to the 63% of life insurance holders in 2011. According to the same research, the top reasons for not purchasing life insurance in the US are the high cost and the feeling of lack of unnecessity.
However, life insurance is one of the best decisions you can make in your lifetime. This post brings you the five important reasons why you need life insurance.
Five Important Reasons Why You Need Life Insurance
There are many excellent reasons for getting a life insurance policy. However, we present the top five reasons below.
It acts as a safety blanket.
To say that life is unpredictable is an understatement. Irrespective of whether you engage in a high-risk job or stay at home, anything can happen to us at any time. Accidents and death are unfortunately a part of human existence.
But having life insurance provides safety even after you die. In the US, funerals are not cheap, with the most basic ones costing no less than ten grand. If you have a life insurance policy, your parents or a loved one does not have to bother with the expenses while preparing you for the afterlife.
In addition, the money from your insurance can also help pay off debts. This can be anything from student loans, mortgages, and credit card loans, among others.
Life insurance is also a great way to protect your business. In case of premature death of a key employee or a business partner, the insurance money can be used to buy out the shares of the deceased partner.
It is a tax-efficient way to transfer your wealth.
If you are among the elite few with an endless pocket, you probably think that you don’t need life insurance. And you are not wrong. However, since none of us are immortal, you might want your riches to go to your wife, children, or someone you love after you die.
In the US and most countries, the funds from a life insurance policy are not part of the taxable income. This is a fantastic advantage since most life insurance benefits can run up to a million dollars at the time of withdrawal. There is no other vehicle or conduit where a beneficiary can receive such a large amount of money without piquing the interest of the taxman.
There are certain conditions where the beneficiary of a life insurance plan may need to pay tax. It occurs when the policyholder decides to hold the funds to be transferred later, or the payout is scheduled to be paid in installments. Nevertheless, cases of life insurance beneficiaries paying taxes are an exception and should not be a deterrent.
It helps you achieve your life goals.
Everyone has goals and dreams, both short-term and long-term. It can be anything from starting a business, starting a family, and buying a home, among others.
For those planning a family, you should keep in mind that the healthier you are, you will get access to more competitive pricing on life insurance policies. This may not be the case when you decide to get a policy while pregnant. In addition, a life insurance policy will also allow your significant other to not compromise their standard of living whether they bring in their paycheck or not.
By definition, life insurance policies are long-term investments. Therefore, it is one of the best and most effective ways to help you achieve your life goals, whether short-term or long-term.
It is a great way to supplement your retirement plans.
One of the most important long-term plans in a person’s life is planning for a safe and comfortable retirement. For most people, investing in a 401(k) plan or a simple IRA is the most preferred method. However, these options are not enough to secure a comfortable living after retirement.
Investing in life insurance ensures that you get a regular monthly income. In this regard, it functions like a pension plan. In addition, it also acts as a fantastic backup just in case other investments do not work out as planned.
This eliminates the need to worry about where your next paycheck will come from. You also have peace of mind and continue living the same lifestyle without sacrificing anything.
It is a tax diversification tool.
Everyone in the investing world talks about diversifications in investment portfolios. However, very few people talk or even think about tax diversification. Most people in the US put a chunk of their retirement money into 401(k) and Roth IRAs. Depending on factors such as your age and tax bracket, you could easily pay up to 37% for a 401(k) withdrawal.
Now, these traditional retirement plans have their benefits. However, their taxable nature means that the money that you get in your pockets during retirement is significantly less.
Permanent life insurance policies are usually not taxable under income tax. As already mentioned earlier, only in some exceptions are life insurance taxable. So if you are smart, you will also benefit from investing in the non-taxable plan to secure your future and your loved ones.
As is evident from the arguments presented in this post, life insurance is an excellent way to protect your future, family, and business. It gives you peace of mind in this life. But it will also save your loved ones a lot of burdens even after you are gone.
Most types of investments inherently carry some amount of risks, which can deter a lot of people. On the other hand, investing in life insurance ensures financial safety and peace of mind. So, in addition to all the fantastic advantages of this life-saving policy, there is nothing more you can expect from making an investment decision.