5 Top Benefits of Life Insurance in 2024

Five financial benefits are available to you and your family from life insurance. If you add life insurance to your plan, it will provide your heirs with a lump-sum, tax-free payout. This money can be used to cover your final expenses or to replace your income. You can still benefit from life insurance while you are alive. Some policies will pay out in the event of a chronic or terminal illness, while others provide you with savings that you can use for your retirement.

Learn about the benefits of investing in life insurance.

1. The final expenses of life insurance can be covered

A funeral with cremation cost approximately $6,971. A funeral with cremation costs approximately $6,971. 2 Your beneficiaries can use money from your life insurance to cover your burial expenses, without using their own savings, or credit. The cost of a funeral with cremation is approximately $6,971.

Several insurers offer policies for final expenses. These policies offer low coverage amounts with relatively affordable monthly premiums. Final expense insurance can help beneficiaries avoid financial crises when a loved one passes away. This could cover funeral expenses, medical costs, auto loans or mortgage payments.

2. You can give your dependents money to cover their living expenses

The rule of thumb is that your life insurance benefit should equal 10 times your annual income. If you own a policy or policies of this size, those who depend on your income can still afford to pay for their daily living expenses. Benefits can be used to pay for essential daily expenses such as rent, mortgage, utility bills and groceries. According to the Bureau of Labor Statistics, households will spend an average of $72,967 annually in 2022.

Your financial goals and your other resources will determine the exact amount of insurance you need. If you want to cover major expenses, then more insurance may be needed. You might want to use the policy to cover your child’s college expenses so that they won’t have to take out loans. If you have an abundance of money saved up, you might be able to get away with a small life insurance policy.

3. The tax-free payouts of life insurance

Your beneficiaries will receive death benefits if you die with a life-insurance policy in force. The payouts from life insurance are not considered income and beneficiaries do not have to declare the money on their tax return.

However, a beneficiary may receive earned interest if they choose an installment payout option. Any interest received is taxable and must be reported as such.7 Depending on your state’s laws, life insurance benefits may be used to offset some or all of owed estate taxes. In this case, your heirs won’t have to liquidate assets or pay out of their inheritance.8

4. You Can Get Coverage for Chronic and Terminal Illnesses

Many life insurance companies offer endorsements, also known as riders, that you can add to your policy to enhance or adjust your coverage. An accelerated benefits rider allows you to access some or all of your death benefit before you pass away. Under some policies, for example, if you are diagnosed with a terminal illness, you can use your death benefit while you’re still living to pay for your care or other expenses.9

A long-term care (LTC) rider is another type of life insurance policy that pays for expenses not covered by traditional health insurance, such as a home health-care worker, long-term care facility, or nursing home care. The insurer may distribute your payout either as a lump sum, or as a monthly percentage of your death benefit (typically 1% to 4%). Most LTC policy riders have a waiting period (often 90 days) before you can start using the benefit.10

5. Policies Can Supplement Your Retirement Savings

If you purchase a whole, universal, or variable life insurance policy, it can accumulate cash value in addition to providing death benefits. The cash value grows at a guaranteed rate determined by the policy provider. Growth is not affected by market conditions, allowing the funds to accumulate at a stable rate over time. Additionally, the cash value of whole life insurance grows tax-deferred. This means there are no income taxes accrued on the cash value (or its growth) until it is withdrawn.11

As the cash value builds up over time, you can use it to cover expenses, such as buying a car or making a down payment on a home. You can also tap into it during your retirement years if you need to. If you decide to borrow against your cash value, the loan is not subject to income tax as long as the policy is not surrendered. The insurance company, however, will charge interest on the loan amount until you pay it back. Insurance companies have varying interest rates on these loans.12

A life insurance policy should not replace traditional retirement accounts like a 401(k) or an IRA. What’s more, cash value life insurance is considerably more expensive than term life insurance, which has no savings component but simply a death benefit.11

An Underutilized Financial Tool

Life insurance can be essential for protecting your family financially in case of a tragedy, but many people go without it. In fact, nearly half of American adults do not have life insurance, according to a 2023 survey.13 One reason is that people assume life insurance is more expensive than it is. For example, 8 out of 10 Millennials overestimated the cost of life insurance in a 2022 study.14

In actuality, the average cost is closer to $200 a year.15 If you think investing in life insurance may be a smart financial move for you and your family, consider consulting with a financial advisor to adopt it into your financial plan.

What Are the Main Benefits of Life Insurance?

The main benefits of life insurance are the tax-free death benefit for your heirs, the cash value you can use while still alive, and the extra coverage for nursing home care as well as terminal and chronic illnesses.

What Are the 5 Types of Life Insurance?

The five main types of life insurance are term life, whole life, universal life, variable life, and final expense coverage, also known as burial insurance. Each type has different features and benefits. For example, term is more affordable but has an expiration date. Whole life starts out costing more, but can last your entire life if you keep paying the premiums.

What Are 3 Things Life Insurance Covers?

Life insurance covers your final expenses, like a burial and funeral, when you pass away. It can pay off your debts and medical bills. Life insurance could also cover your mortgage and provide money for your family to keep paying their bills.

Who Really Needs Life Insurance?

If you have family depending on your income, you likely need life insurance to support them after you pass away. Stay-at-home parents and business owners also often need life insurance. Even if you don’t have dependents, life insurance could help protect your loved ones against owing the cost of your final expenses and debt.

The Bottom Line

Life insurance benefits aren’t just for the wealthy. No matter your income level, life insurance can ensure your loved ones could make ends meet if you were to pass away. It can also help you pay your bills while you’re still alive. And, life insurance might be more affordable than you think. If you decide to get coverage, consider Adsrocks’s list of the best life insurance companies of 2023.

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