Especially in the wake of the pandemic, many Americans are re-evaluating their long-term financial health. In particular, data indicates that three issues are dominating dinner table discussions these days:
When it comes to life insurance, however, a perennial question remains for many… Is it really worth it?
Saginaw Bay Underwriters created this helpful, two-part series of posts entitled “Life Insurance… Is It Worth It?” to address this question, and help you answer it for yourself and your family.
Here in Part 1, we’ll look at the possible value of life insurance from two vantage points.
Two Ways Life Insurance Is Valuable
The most vital thing to understand when considering life insurance is that there are at least two distinct types of value it can provide:
When most people think of life insurance, they think of its practical value: Security for your loved ones and resulting peace of mind. If you were to pass away, life insurance can provide funds for things like final expenses, outstanding debts and other unfortunate, end-of-life-related costs.
Many people find that this practical value of life insurance makes it worth it for them and their families. You may likely feel this way yourself. However, whether life insurance is worth it to you in terms of investment value is a different question altogether – one that many people have not spent time considering. It’s also a question that requires a simple understanding of the two types of life insurance.
Term Life Insurance & Permanent (Whole) Life Insurance
When people talk about life insurance, they usually mean term life. This type is simple, inexpensive and widely available. With a term life insurance policy, premiums are based on the probability that the insured will pass away during a certain period of time or “term” – generally 10, 20 or 30 years – and are guaranteed for that term. If the insured passes away during the term of the policy, benefits are paid to the beneficiary or beneficiaries.
Permanent life is a more complex type of insurance. It’s often referred to as whole life, but it actually includes several other subcategories as well, such as universal life, variable life and variable universal life insurance. A permanent life insurance policy is in effect for as long as premiums are being paid – there is no set term limit.
The relevant difference here, however, is that while both types of insurance “pay out” in the case of death, permanent life insurance can also include some kind of savings mechanism, allowing you to invest and borrow against your policy.
So Is Permanent Life Insurance a Good Investment?
It depends on your specific situation.
On the positive side, the investment portion of a permanent life insurance policy grows tax-free. In addition, you can borrow against the cash value of your policy tax-free for certain uses, such as to buy a house or pay for a child’s college tuition.
However, other investment opportunities – IRAs and 401(k)s for example – may be better investment options for you, depending on your age, health, overall financial situation and other factors.
Making the Complex Simple
Many people still ask themselves: Is life insurance really worth it? We hope these posts will help you answer this question for yourself and your family.
In Part 2, we’ll look at the two types of insurance in more depth, to give you an even better understanding of life insurance and its potential value.
Call Saginaw Bay Underwriters at (989) 752-8600 if you’d like to speak more about life insurance with an advisor.
Saginaw Bay Underwriters has made every attempt to ensure this information has been obtained from reliable sources. Current as of: March 2021