March 27, 2022

Death Be Not Proud: Why You Need Life Insurance

Eric Bank
Former Citadel Director of Business Analysis

Sooner or later, the Grim Reaper visits us all. Life insurance won’t keep him away, but it will help protect the people who rely on you financially. There are several compelling reasons why some amount of life insurance makes sense for just about everyone. Some motives are apparent, but you may have overlooked some others. Here is a short list:

  1. Protection That Is Guaranteed

Unlike many other assets, permanent (i.e., universal or whole) life insurance benefits are a guaranteed financial safety net. When you die, your beneficiaries collect either a lump-sum payment or an annuity that will be paid in full (assuming all premiums are current). It’s the kind of protection on which your loved ones can depend.

Note that term policies expire after a set period and may be hard to replace.

  1. Life Insurance Replaces Income

Your demise could leave a big hole in your family’s finances, especially if your spouse doesn’t earn a wage. Your family can use life insurance proceeds to pay the expenses for a mortgage, your children’s college education, health care, childcare, and household debt. You can even apply the payment to preserving a family business. When coupled with a will or trust, you can control how your beneficiaries can use the death benefit or leave those decisions to them.

  1. The Money Is Tax-Free

Your loved ones will have much to deal with when you pass away. But life insurance can relieve them of one burden – figuring the taxes on your life insurance payment. The death benefit from life insurance is free from federal income tax, meaning your beneficiaries can use 100% of the money to meet their financial obligations.

  1. A Permanent Life Policy Guarantees Cash Value Growth

You build the cash value of your permanent life insurance policy every time you pay a premium. That cash value grows tax-deferred according to the terms of the policy. You can borrow some of your policy’s cash value to meet various financial goals, including:

  • Paying off a mortgage
  • Paying educational expenses for a child or grandchild
  • Increasing your retirement income
  • Protecting your other assets
  • Creating an emergency fund
  • Funding lifelong dreams, such as a world cruise or a fishing boat
  • Paying for expensive life events, such as births and marriages

Any outstanding loan balance reduces a policy’s death benefit. You decide whether and how much to repay, and you can even choose to pay interest only. Because policy loans are not income, they are tax-free.

Term policies do not build cash value. 

  1. You Might Collect Dividends

Many permanent life insurance policies pay dividends that you can take as cash, use to pay premiums, or buy additional paid-up insurance to increase your coverage. 

  1. You Have Options

Life insurance policy riders let you tailor your policy to fit your needs. For example, you can purchase a rider to buy additional insurance without a medical exam. Other examples might include riders to pay your premiums if you become disabled or index your death benefit for inflation. Speak with your life insurance agent to see if you’d like to add riders to your policy.

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