No insurance policy is perfect, as is the case with life insurance. While there are many positives, there are also some negatives to consider when determining if a life insurance plan is a right choice for you.
Below you’ll find some of the most important pros and cons when buying a life insurance policy that fits your needs.
Pros of Purchasing a Life Insurance Policy
1. Tax Benefits
One pro in purchasing a life insurance policy is that your family can use the payout amount with minimal or no taxes on the amount. This can make a big difference if they’re paid a lump sum which is a large amount.
Taxes on a $500,000 payout could cut the payout to nearly half in some areas, but life insurance payouts are typically tax-free. Tax benefits also increase when opting for a whole policy over a term policy. Be sure to discuss your options with any potential insurer.
2. Protecting Your Family
Perhaps the biggest benefit of purchasing life insurance is the peace of mind that comes with the purchase. Knowing that your family will be taken care of regardless of what happens is monumental. Just as we carry insurance for other areas of our lives, such as homes and autos, life insurance is necessary to make sure loved ones can carry on in the case of your absence.
3. Access to Funds
If purchasing a whole policy, as in one that covers your entire life from the point of purchase to death, you may have the added benefit of a cash value component. The cash value component allows you to access a portion of your whole life insurance’s value if you need emergency funds.
Like home equity credit, you can borrow against the value of your plan in a time of need to cover any necessary expenses like medical or other.
Cons of Purchasing a Life Insurance Policy
1. Another Monthly Cost
Though life insurance, especially term insurance, is typically affordable, it is another cost you will need to budget for when financially planning.
The additional financial burden can be unappealing and hard to swing if you’re tight on funds. This is especially true if you decide to purchase later in life. The longer you wait and the unhealthier you are, the more that you can expect to pay for your premium.
2. Requires Research
As with any financial tool you welcome into your life, it’s important to do proper research. Without it, you won’t be able to find the best plan for you as determined by your unique needs. In other words, you’ll want to search for the perfect plan for you, which takes time and energy.
You can consult a broker to help you shop around based on your needs, which may help offload some of that time invested in comparing plans. In the end, finding the perfect plan for you will provide peace of mind that is well worth the effort.
3. Lifestyle Can Make Life Insurance Costly
Depending on your health and other circumstances, purchasing a life insurance policy can be pricy. Higher premium costs may be necessary if you have a health ailment that makes you a higher risk for life insurance companies to insure you.
Additionally, if you choose a whole policy, you can expect to pay much more than compared to a term policy with a set coverage for a limited length of time.
The Bottom Line
Life insurance offers peace of mind and benefits for your family that can’t be found in any other financial tool. To maximize benefits and avoid the cons of purchasing a life insurance plan, it’s important to take some time and search for a plan that fits the needs of your loved ones and you.