Reasons to buy insurance are different for everyone. But at its core, the decision to purchase life insurance is about providing financial security for your loved ones. Learn the key benefits of life insurance and why it is important.
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Why is life insurance important?
Life insurance protects your loved ones from the potentially devastating financial impact of losing you. It provides your beneficiaries with a lump-sum payment upon your death, offering immediate financial security to help pay off debts, handle living expenses and cover medical or final expenses. This immediate financial support helps ensure your family isn’t burdened financially during an already difficult time.
Your life insurance policy delivers a specified amount of money directly to your beneficiaries, and that death benefit is typically not subject to federal income taxes if you own the policy and are the insured. For instance, a $500,000 policy provides your beneficiaries with a full $500,000 death benefit, helping them maintain their standard of living.
10 important benefits of life insurance
Life insurance offers protection and so much more. Certain policies can help cover expenses and supplement long-term goals like retirement or pay for your children’s college education. Whether you’re planning for your future living needs or want to prepare for the unexpected, here’s how life insurance can support your financial well-being.
1. Guaranteed protection for those who depend on you
If your family, your business, or others rely on your income, the life insurance benefit of a whole life policy ensures they have a financial safety net. When you pass away, your loved ones receive a guaranteed, lump-sum payment (provided premiums are paid and there are no outstanding loans), offering vital protection when they need it most. Guarantees are based on the claims-paying ability of the issuer.
2. Help your family pay for immediate costs
A life insurance death benefit can immediately help cover expenses such as funeral and burial costs, outstanding medical bills, and debts you leave behind. This can significantly ease the immediate financial strain on your family during an emotionally challenging period.
3. Replace lost income
Consider what would happen if your family suddenly lost your income. Life insurance provides your beneficiaries with funds to help:
- Pay the mortgage or rent
- Afford childcare, healthcare, and household expenses
- Cover tuition or college costs
- Eliminate household or personal debts
- Preserve or continue a family business
4. Tax-free benefit to beneficiaries
Your beneficiaries receive the full benefit from your life insurance policy, which is generally federal income tax-free. This means the money you’ve allocated reaches your loved ones without tax deductions, ensuring they receive the maximum financial benefit.
5. Cash value to help meet financial goals
Whole life insurance policies build guaranteed cash value as you pay your premiums. This cash value grows tax-deferred and as protection needs change in the future can be accessed to:
- Supplement retirement income
- Fund education for children or grandchildren
- Pay off a mortgage or debts
- Protect existing assets
- Establish or contribute to an emergency fund
Accessing the cash value will decrease the death benefit and the cash surrender value.
6. Potential dividends to use how you’d like
When you purchase whole life insurance from New York Life, you become eligible to receive potential dividends.1 Although dividends aren’t guaranteed, when awarded, you have flexibility to:
- Receive dividends in cash
- Use dividends to offset your premiums
- Buy additional paid-up insurance, increasing coverage and cash value
- Reinvest the dividends in an interest-bearing account to maximize growth over time.
7. Optional riders to fit your needs
Life insurance can be tailored to your specific needs through optional riders available for additional cost, which allow you to:
- Purchase extra coverage without additional medical underwriting
- Waive premium payments if you become disabled
- Access your policy’s face amount for chronic illness expenses
- Purchase additional coverage for your children
8. Business continuity and protection
Life insurance can help businesses survive the loss of a key employee or owner by funding buy-sell agreements and business continuity plans.
9. Estate planning and wealth transfer
Life insurance can efficiently facilitate the transfer of wealth by providing funds to cover estate taxes and helping heirs receive their intended inheritance intact.
10. Charitable giving
You can designate a charitable organization as a beneficiary of your life insurance, allowing you to leave a lasting legacy and contribute meaningfully to causes you care about.