10 reasons to consider life insurance – sooner rather than later
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Life insurance was first invented by the Romans around 100 BC to cover funeral expenses. Burial societies were created where members pitched into a collective fund, which would be tapped into when one of their own passed away.1 Two thousand years later, their invention is still around – but now, life insurance can provide additional benefits, and there are a lot more reasons to consider purchasing a life insurance policy.
There are different kinds of policies, because people may want different kinds of protection
These days, people can use life insurance in a variety of ways to help protect their families and financial well-being, so there are different kinds of policies that provide different sorts of benefits. The two main types of policies are term life insurance and whole life insurance, and both are binding contracts between you and a life insurance company – as opposed to a society of your peers.
With a term life insurance policy, you agree to pay a premium for a specific period of time, usually between 10 and 30 years. In return, the company guarantees a death benefit2 to your beneficiaries, typically your family. The death benefit is almost always paid out in an income tax-free lump sum of cash.3
Once the term expires, your coverage is gone, and you either have to do without life insurance or get a new policy – and life insurance rates will generally be higher because you are older. That said, many providers – including Guardian – may let you convert a term policy to a permanent life insurance policy for part or all of the coverage period.
A whole life insurance policy provides permanent life insurance protection – it’s literally designed to last your entire life as long as premiums are paid. Like other permanent policies (such as universal life insurance),4 it includes a cash value5 component that grows over time on an income tax-deferred basis, so you don't pay income taxes on the gains. The cash value can be withdrawn or borrowed from during your lifetime 6 – this is a benefit of whole life insurance. A term life policy has no cash value component: once the life insurance term is over, there's no value to your family. However, term rates are typically much lower than those for a permanent policy.
If you’ve been wondering, “Should I consider life insurance?” you have to decide which kind of policy will fit your needs. Ultimately, the choice comes down to your reasons for considering life insurance.
10 important reasons to consider life insurance
1. You want protection that lasts your entire life
The most common reason for purchasing life insurance is to provide a substantial death benefit that can help ensure their family is taken care of in the event of their death. A life insurance policy is typically the most cost-effective way to provide several years’ worth of income replacement to your family in the event that you can’t be there to support them. Some people feel they only need that death benefit during their working years, but others want that protection to last indefinitely. If you’re in the latter camp, consider getting a permanent whole life policy that provides guaranteed lifetime protection as long as premiums are paid.7
2. You want an income tax-free death benefit paid to your family
Both whole and term life will typically pay out the entire death benefit free of income taxes to your beneficiaries. Life insurance – specifically whole life – can provide other tax benefits as well because the policy's cash value grows income tax-deferred over time.
3. You want cash value to help build family assets
The cash value of a whole life insurance policy can help provide a pool of income you can access to help cover unforeseen needs, help fund college expenses or a new business, or even to supplement your retirement income.
4. You want added financial protection
Whether you’re purchasing a term or whole life policy, riders8 can help add flexibility and provide extra financial protection and support, even while you're still alive. However, whole life policies generally have more available riders than term policies because they are designed to cover a lifetime of different possibilities. For example, many whole life policies offer a guaranteed insurability rider (no medical exam is required for increasing your coverage) or a disability waiver9 (which pays your premiums should you become unable to work). Be sure to ask your life insurance company or financial professional about what riders may be available to shape your policy in a way that you prefer.
5. You want to collect dividends
Mutual life insurance companies like Guardian are actually owned by their policyholders and pay dividends to them based on company performance.10 While not guaranteed, dividends can increase a policy's cash value beyond the growth rate guarantee and help build your overall wealth.
6. You want to provide an inheritance
According to a study by NerdWallet, leaving an inheritance was the most selected reason to buy life insurance among millennials (ages 26-41). But term life insurance may not be ideal for this purpose, because coverage is temporary. The income tax-free death benefit of a permanent whole life insurance policy can be a good way to help ensure that an inheritance will be provided when the time comes, and as an added benefit, life insurance proceeds bypass the probate process, which means that funds can be provided before your will has time to go through the courts.
7. You want to help fund an important cause
If part of your estate planning includes leaving money for a cause that’s important to you, you can choose to designate a charity as the beneficiary of your life insurance policy. Another option is to include a Charitable Benefit rider to your term life policy. This rider from Guardian will add an extra 1% to your standard death benefit (up to a maximum of $100,000) to be paid to the charity of your choice, over and above the amount paid to your designated beneficiaries, at no additional premium.
8. You want to help protect your business
Life insurance can do more than protect your family – you can purchase a policy that protects your business, as well. For example, if you are a sole proprietor and the continuation of your business would be jeopardized if you were to die, consider a business-focused life insurance policy to help fund operational continuity that will benefit your employees, customers, and family members who receive the profits from your business.
9. You want to diversify your investments
Stocks and bonds may form the bulk of your investment portfolio, but it never hurts to add more diversity. The cash value of a whole life insurance policy is an asset that can provide guaranteed, income tax advantaged growth similar to a 401(k) or IRA while providing the assurance of added assurance of a death benefit paid to your beneficiaries.
10. You want to manage estate taxes
Funds left to a beneficiary in your life insurance policy are paid out free of income taxes and not counted as part of your estate, which may help reduce tax burdens for your family. However, tax laws can be complex, so be sure to seek appropriate advice from a tax professional before purchasing a policy for estate planning purposes.
Now is a good time to consider life insurance
More and more people are getting covered. According to a recent study, about 52% of American adults have life insurance coverage as of 2023, up from 50% the previous year. What’s more, a record-high 39% of all consumers – and 50% of Millennials – say they intend to purchase life insurance coverage within the next year.7
The good news is that it's easy to get a quote, and since most people overestimate the cost of coverage, it's probably more cost-effective than you think. In fact, a healthy 30-year old male can get a 20-year term life insurance policy with $500,000 of coverage for just over $1 a day.11 But the best reason to get life insurance now – or at least start the process – is because coverage generally gets more expensive as you age.
Guardian can help
Want to get life insurance but can’t decide between term and permanent life insurance? Guardian can connect you with a financial professional who will listen to your needs and recommend different life insurance options to fit your needs and budget.
Frequently asked questions about life insurance coverage
Many factors go into the choice of deciding when to purchase life insurance. Some people choose to get a policy when they get married or start to have children. Others may get a policy later in life to help with estate planning, to provide a source of guaranteed funds to care for a special needs child, or even for final expenses. And, some people apply for a policy when they start their career just after college: they want the financial confidence that whole life cash value can provide, and they recognize that they want to consider purchasing life insurance now, because the cost is generally lower than it will be later in life.
Building savings and buying life insurance shouldn’t be an either/or proposition: both can be important to your financial well-being. Having said that, there are situations or times in life when it makes sense to prioritize one over the other. For example, as you’re starting a family, it may make sense to prioritize getting life insurance, especially if you already have some savings built up. Conversely, later in life, after children have left the house and you’re looking forward to retirement, you may want to prioritize building your nest egg. It’s also important to note that permanent life insurance policies can serve both goals because they provide a death benefit that is payable in full from the first day the policy is in effect, and they accumulate that is available to the policyholder during their lifetime as long as premiums are paid. This can be accessed to help pay college tuition, health emergencies, and other life events – including retirement.
There are many factors that go into answering the question of “How much life insurance do I need?” Your individual circumstances will determine how much of a death benefit you actually need. For example, if you’re the primary earner in your family, your needs could include things like replacing several years of your income, paying off your mortgage and other debts, or paying for college. The life insurance calculator from Guardian can help you determine the amount of coverage you may need and your life insurance cost.