Buying Life Insurance

Buying Life Insurance
 

Good Reasons to Buy Life Insurance

By Loretta Waldman

At this stage of your career, life insurance is probably not what you’d consider a “must have.” You only need it if you have a house, spouse and kids, right? Well, yes and no.

While providing for loved ones in the event of your death is the main reason for buying life insurance, it has other uses worth considering that don’t involve your demise. Did you know, for example, that permanent life insurance provides you with another way to save? And there are riders that can be added to a life insurance policy that provide other types of coverage, such as long-term care and disability.

If you want to use life insurance as a supplemental savings vehicle, here’s how it works:

Unlike term life insurance, which pays out only if you die during the policy term, permanent life insurance policies – also called value life insurance – pays a death benefit no matter when you die. Part of your premium goes into a separate account and builds up cash value over time. Depending on your policy, this cash value may be part of your benefit or an addition to it.

Like other savings, you can borrow this cash should the need arise, be it in retirement, for a down payment on a house, or in an emergency. And borrowing against a life insurance policy has advantages over loans from banks or credit cards, according to this post on the insurance blog of NerdWallet.com, a San Francisco, California, based personal finance education and empowerment site – namely there’s generally no credit check, lower interest rates, and no timetable for repayment.

But there are also disadvantages to borrowing against a life insurance policy, NerdWallet notes, so know the pros and cons before borrowing. The most significant drawback is that it reduces your death benefit should you not repay the loan in your lifetime.

Not to be morbid, but the other uses for life insurance do involve your possible demise. Even if you don’t have spouse or dependent children, here are some good reasons to buy coverage:

  • Should you die, the benefit helps your parents or surviving family members pay funeral expenses and creditors, like for example, the student loans your parents co-signed.
  • Though you may have company backed insurance through your job, purchasing a separate additional policy protects you if an illness or injury results in your losing that coverage because you can’t work.
  • Buying insurance when you’re younger generally costs significantly less.

If cost is an issue, don’t make the mistake of assuming life insurance is out of your reach. Though you can’t borrow against it, the cost to a term life insurance policy is relatively inexpensive – about $20 a month for $500,000 of coverage, according to Money Magazine. The cost of disability insurance – another type of voluntary or optional coverage – is around $30 a month, the article says. Other voluntary coverages that may be available at affordable rates through your employer include:

  • Short-term Disability Insurance (STD) – helps maintain your income should you be unable to work due to a short-term injury or illness.
  • Long-term Disability (LTD)- covers non-work related injuries of longer duration, such as when your doctor orders bed rest (those caused by a heart attack, back pain or scoliosis).
  • Critical Illness Insurance (CI) – helps protect your savings during treatment and recovery from a critical condition such as cancer, transplant, or other major illness.
  • Accident Insurance – helps protect you against the financial burden that accident related costs can create.
  • Accidental Death and Dismemberment Insurance (AD&D) provides a lump sum payment in the event of a covered accident. This coverage helps protect you from the financial consequences of an accident.

You might not think you need this protection, but an analysis of U.S. Census Bureau data by the Pew Research Center shows that 1 out of 5 adults between the ages of 25 and 34 live in multi-generational households and that those adults contribute an almost 25 percent share of household median income. Whether or not you’re among them, voluntary benefits help protect the things in life you’re working toward, like the house, spouse and kids you one day hope to have.