If you have loved ones who would run into trouble without your support, or if you would experience difficulties if your loved one passes away, getting life insurance can be an excellent idea. But as appealing as getting money upon a loved one’s passing may sound, life insurance isn’t for everyone, and some people would benefit more than others. Making a decision on whether or not to get life insurance involves considering its advantages and disadvantages as well as whether or not you would get more in benefits than what you pay in premiums.
Advantages of Life Insurance:
1. Tax benefits: Unlike almost any other type of insurance, beneficiaries can enjoy tax treatment that’s in their favor by getting access to life insurance. Withdrawals are generally not subject to income taxes, and income taxes also do not need to be paid for policy loans. Switching life insurance policies also doesn’t generally introduce potential for additional taxation. For details on taxation with regards to life insurance, please contact your tax adviser.
2. Flexibility: Those who are concerned that their life insurance policies no longer provide the benefits needed or that their premiums no longer suit their needs are able to adjust them easily. Owners of policies also have the freedom to choose their beneficiaries, who can use death benefits however they please. For example, they can use them to make payments for loans.
3. Low premiums for new policies: In most cases, premiums for life insurance are low during the first years of the insurance period.
Disadvantages of Life Insurance:
1. Fixed periods of coverage: Most life insurance only covers individuals for a limited period of time. Many policies last for only one year or for five-year increments up to 30 years. However, options to renew the policies are often available.
2. Premiums may increase: Old age or poor health can turn the flexibility of premiums into a disadvantage, because premiums are known to increase substantially in cases when death becomes more likely.
3. Limited options for those in poor health: Those in poor health may be unlikely to get life insurance for reasonable premiums. This is because this situation allows limited opportunities for providers of life insurance to make a profit.
4. Uncommon actual payout of death benefits: In practice, the majority of life insurance policies never actually result in payouts. This is why it pays to consider why you need life insurance and whether or not you’re likely to actually benefit from it.
Remember that insurance is a means of asset protection, and it does not make sense to get insurance if you’re not at risk of losing the asset you’re protecting. Although there are many benefits of life insurance, life insurance companies have lots of experience in minimizing their own risks, and life insurance policies will tend to be more favorable for insurance providers. By making good decisions, however, you’ll be able to effectively protect yourself from losing resources you depend on and have access to a means of compensation for any emotional hardship you might have through life insurance coverage.