Benefits of Life Insurance
By James Tobin, CFP®
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Expert Review Of The Benefits of life insurance
Jim Tobin, CFP®
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If you are interested in learning the benefits of life insurance, you have landed in a good spot. This article will address the many benefits of life insurance (and a few potential drawbacks).
Okay, What Are The Benefits Of Life Insurance?
The benefits of life insurance are twofold. On one hand, there are the benefits and privileges that are contractually laid out, and on the other hand, there is sense of security in knowing your family is protected.
As the tag line of the Life Insurance Help Desk home page attests, we think the most important benefit of life insurance is the "Serenity of Knowing..."
If that sounds silly to you, please understand that the tag line needs to be completed by you, the life insurance buyer. For many buyers it's
- "knowing my kids can go to college", even if i'm not around.
- "Knowing that my spouse will be able to keep the family home", should tragedy strike.
For other life insurance buyers it's about transparency :
- "knowing I'm not being ripped off"
- "knowing my rates will never go up"
What Are The Contractual Benefits Of Life Insurance?
The contractual benefits of life insurance depend on the type of life insurance chosen. Different types of policies, such as term, whole life, and universal life have different contractual benefits and obligations.
The most important contractual benefit of life insurance is the (usually) tax free death benefit to be paid to the beneficiary of the in force policy. For the contract to remain in force, the premiums must be paid by the policy owner/payor or from cash value in the policy.
With term policies, the benefit amount is spelled out in the policy. While, with permanent policies the initial benefit amount can change in accordance with the rules set forth in the contact. These changes can come about due to performance of the policy, over-funding the policy (paid up additions), policy loans, or certain rider elections.
Aside from the death benefit, the primary contractual benefits of life insurance lie in the aforementioned riders. Riders differ from policy to policy and carrier to carrier. Below are some of the most beneficial riders to a life insurace policy:
Conversion Rider- The conversion rider is a policy provision that allows for tghe conversion privilege from term insurance to permanent coverage without proof of insurability (no health exam or questions). This provision may come in handy should your health decline at any time during the conversion period.
Disability Waiver of Premium - This rider allows for the monthly premium to be waived in the event that you become disabled and unable to work. This waiver is available on both term and permanent products.
Disability Income Rider- Like the waiver of premium rider, this option comes at an additional cost. However, should you become disabled it will provide a stream of income.
Additional Purchase Option- This rider option allows for the additional purchase of insurance without proof of insurability.
Child Rider- This rider allows for inexpensive coverage on minor children and can be converted to permanent coverage. this is beneficial should your child develop a health condition that is not readily insurable as an adult.
Accelerated Death Benefit- The accelerated death benefit rider allows for the disbursement of up to 90% of death benefit funds. This rider is very policy language dependent and should be discussed with your agent.
Critical illness Rider- This rider is a cousin of the accelerated death benefit rider. Rather than being terminally ill, the rider language generally focuses on the ability to (not) perform the activities of daily living (ADL). This rider is also language and carrier specific, so consult your agent.
Paid Up Additions- This rider is designed for cash value whole life policies. The objective is to use the rider to over-fund the policy and "turbo charge" the cash growth. This is an advanced strategy used with "investment grade" life insurance.
The Benefits Of Life Insurance : Rights Of Ownership
Finally there is the rights that flow from ownership of the policy. As the owner of the policy, you have the right transfer the policy through gift or sale. Bear in mind that there may be tax consequences to a transfer.
As the policy owner, you have the right to post the policy as collateral in business dealings. If there is cash value attached to the policy, you can take loans against the cash value. However, be warned that if there have been gains in the policy and it lapses, you will face tax consequences for the gains above basis.
Lastly, as the policy owner, you get to decide the beneficiaries. This is a good incentive for your kids to stay in touch in old age!
Benefits Of Life Insurance : Next Steps
Thank you for choosing the Life insurance Help Desk to research the benefits of life insurance. We hope that it's as clear to you as it is to us that the benefits are more than contractual. they are 'the serenity of knowing..."
Please us this site as a resource and should you have any questions about life insurance benefits or anything else, please do not hesitate to give us a call or drop an email.
Bonus: The most common mistakes people make buying life insurance and how to avoid them