The topic of insurance or talking about it can be boring and even unpleasant for some but it’s hard to deny how important, valuable, and necessary life insurance is. It stands as our loved ones’ financial safety net if something were to happen to us tomorrow.
Life insurance can guarantee our family won’t struggle financially if we suddenly fall ill or die today or a few months from now. Its proceeds can be used to settle the mortgage, finance a child’s education, pay lingering debts, and for everyday living expenses.
While all these are true, life insurance comes with drawbacks too, which you need to know before signing up for one. Fret not though, because we’re here to help you understand them.
Below, we’ll break down the advantages and disadvantages of life insurance. First, let’s define what life insurance is!
What is Life Insurance?
Life insurance is a policy that guarantees your beneficiaries a sum of money should you get diagnosed with a critical illness or suddenly pass away.
If you’re the breadwinner, life insurance plans can help you take care of the financial concerns that your family will likely face if you lose your job, become critically sick, or die.
Take this as an example: if you get diagnosed with a terminal illness tomorrow, life insurance may cover your medical bills and treatments. It can save you from dipping your hands into your emergency savings just to pay these expenses.
Everything will be settled by the insurance company, but that depends on the period and coverage of your policy.
Simply put, life insurance will be your loved ones’ financial protection in a future filled with uncertainties.
Whole Life VS Term Life
There are 2 types of life insurance: term life and whole life.
Term life and whole life are essentially the same, but the length of coverage is their main difference, so keep that in mind when choosing policies!
Under life term insurance, you’re only protected for a certain number of years until your policy expires, but it can be easily extended.
It’s recommended for those who aren’t financially capable of paying insurance premiums for many years but still want some form of protection.
If you pass away while the policy is enforced, your family will receive a death benefit. Otherwise, they won’t receive anything.
On the other hand, whole life insurance is a form of permanent life insurance that protects the policyholder for life. It shouldn’t expire as long as you keep making your premium payments.
It comes with the relief that if anything happens to you in the years to come, you’ll be protected no matter what.
If you decide somewhere along the way to stop your insurance policy, you’ll receive a payout known as cash value.
Pros and Cons
Life insurance provides several perks that aren’t present in other financial planning tools, but it comes with disadvantages too.
Let’s go over its advantages first:
Flexible coverage
Since there are 2 types of life insurance, you get to choose which one fits your goals, budget, and lifestyle.
Go with term life insurance if you don’t like the idea of paying premiums for many years. It’s the cheaper option because of the limited length of the coverage.
If you’re able to shell out more for premiums, then opt for whole life insurance because you’ll be protected for life.
Budget shouldn’t stop anyone from getting life insurance because there are policies that can accommodate most financial standing!
Peace of mind
The idea of death and being critically sick may be terrifying, but it’s not as terrifying as the thought of your loved ones struggling to pay your medical bills and funeral expenses.
Let’s be real: no matter how healthy you think you are, you can never be certain of the future.
Even a stable life comes with some worries, especially if you have a family and are the breadwinner. Losing your job tomorrow without any form of protection means you’ll have to depend on what’s left of your emergency savings to survive.
A life insurance plan gives us the sense of relief that there's financial support for us and our family in the future.
Tax benefits
Unlike other financial planning tools, the payouts from a life insurance plan are usually safe from incurring huge taxes. It means all your money will go straight to your designated beneficiary - no more, no less!
One of the best things about life insurance is the favourable tax treatment, which isn’t the case even for retirement plan proceeds.
Savings when you need it
While whole life insurance may be more expensive, it allows policyholders to access the accumulated cash value by withdrawing or borrowing it in case of an emergency.
For example, if you need extra cash for the renovation of your home, you can borrow the accumulated cash value, whose total amount will depend on the particulars of your insurance policy.
In some cases, you can even use the total cash value to augment your retirement savings, proving that there’s no shorter end of the stick when it comes to life insurance.
Now, let’s move on to the disadvantages of life insurance:
Another expense
If you have enough on your plate already, life insurance would seem like another expense to pay, especially since you may not be able to use it any time soon.
The reason many people choose to put off getting life insurance is that it seems like spending huge money on an intangible asset.
There’s no doubt that life insurance can be expensive, but that’s not always the case! The earlier you sign up for life insurance, the lower its overall costs will be.
Getting life insurance in your 20s won’t make as much dent on your paycheck as starting it when you’re already 40.
Reminds us of our responsibilities
The idea of life insurance makes us think of how massive and serious responsibilities are as adults.
It can be nerve-wracking to accept that you have people depending on you, but there may be nothing you can do about that but give them financial security.
The major benefit of getting life insurance is that it forces you to face your responsibilities head on, no matter how overwhelming they are. It will encourage you to plan for the sake of your loved ones.
More complex than other financial planning tools
Another downside of getting life insurance is the learning curve, which can take time for some people.
For those who know little about insurance, you’ll likely feel overwhelmed by the range of options and new terminologies.
Before knowing which policy works best for you, you’ll have to take your time looking into different types and details of life insurance policies. That can be hard for someone without any knowledge of insurance.
Worry not though, because you can enlist the help of financial planning experts anytime!
By consulting with them, you’ll have a better understanding of the insurance industry, how it works, and how you can use it to achieve your goals.
Protecting your loved ones through life insurance
While we can never predict the future, we can minimise the uncertainties by opting to protect ourselves with life insurance!
By getting life insurance, you’re giving your loved ones financial security even after you’re gone. You may see it as an additional expense now, but the peace of mind of knowing that your family will be taken care of in the future is priceless.
If you want to talk to an expert about financial planning and wealth management, feel free to send us a message! We can connect you with experienced financial advisors who can help you reach your financial goals!
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