10 Benefits of Life Insurance: Why You Need It Now

Despite the fact that many know they need life insurance, nearly half of consumers do not have insurance, according to a 2021 LIMRA study. The most common reasons are that they think it is too expensive, they have other financial priorities, or they aren’t aware of what they need and what type to purchase. https://www.youtube.com/watch?v=vuKJznszXbE To help you overcome the hurdles and make decisions to shrink your life insurance coverage gaps, we’re sharing the 10 benefits of life insurance. Life insurance isn't just about death benefits but a powerful tool for creating security, growth, and legacy. So, if you have life insurance needs, doubts, interests, questions, or even fears, and you want straight-talk, no-nonsense answers… tune in now! Table of contentsWhy Do People Need Insurance?How Much Life Insurance Do You Need?10 Reasons People Buy Life Insurance1. The Benefits Outweigh the Costs2. Financial Protection for Loved Ones3. Peace of Mind During Life’s Uncertainties4. Tax Advantages to Grow Wealth Faster5. Additional Retirement Income Strategies6. Automatic Savings & Forced Discipline7. Excellent, Efficient Cash Storage8. Ability to Capitalize on Opportunities9. Leverage the Velocity of Money10. Generational WealthWrapping up on Life Insurance BenefitsBook A Strategy CallLinks for Further Reading Why Do People Need Insurance? [1:50] “I really just think it comes down to [the fact that] people do not want to face their own mortality. I think I said this once before on a podcast—we all know we’re going to die, we just don’t believe we’re going to die.” It’s almost an evolutionary development because if we were constantly obsessing over our mortality, the world would be a much different place. Even so, people think about their deaths the more they have to protect: families, estates, etc. Life insurance is the product that protects your family and estate if you die. Knowing that that protection is in place, you can sleep easier at night knowing that what matters to you will be taken care of no matter what.  How Much Life Insurance Do You Need? Unfortunately, many families in the US are underinsured. Life insurance is perhaps one of the only insurance categories where this can happen. You can’t underinsure your car or your house, nor would you want to. Yet people underinsure themselves all the time.  One way this happens is because many people calculate their insurance by using a “needs analysis.” In other words they count out how much money they’d need to pay off their home, car, and other debt if they passed away. Sometimes they include the cost of their children’s education. However, this doesn’t account for any income. While this is of course a better approach than having no insurance, there’s an even more effective way. It’s called the human life value approach, or HLV. This is a way of calculating all the income you’d earn over your working years so that your insurance can act as a full income replacement. So if you’re 30, you may multiply your annual income by 30 to get your HLV. If you’re 50, you’d multiply it by about 10 or 20, depending.  While this number seems shocking to many people, it’s realistic. Insurance companies won’t overinsure you, and they calculate HLV to determine the maximum amount of insurance you are entitled to. Many people don’t start out with enough liquidity to pay the premiums for their full HLV. However, just by knowing what that number is, you can feel more confident in the amount of insurance you do choose to purchase.  10 Reasons People Buy Life Insurance We don’t want to tell you what you “need,” because everyone has different circumstances. However, what we can do is share with you why people buy life insurance, and why they keep it. Hopefully, these can help you decide for yourself whether life insurance will be a benefit to you. So let’s explore these 10 life insurance benefits: 1. The Benefits Outweigh the Costs [17:10] “Instead of painting in your mind ‘It’s too expensive, I can’t do it,’ just check it out first. And then figure out if it’s too expensive.” The problem with “too expensive” is that it means something different to different people. For some, it may mean that they can’t fit it into their monthly expenses. For others, it may be expensive if the cost outweighs the benefits.  To the former, there may be a way that we can help you find some wiggle room. That may include rearranging some of your expenses or paying down some debt. Or, you could get a smaller whole-life policy, and fill in the gaps with cheaper term insurance.  For the latter mindset, we encourage you to think about the benefits. Protecting your family, having a non-correlated asset, the ability to leverage your dollars, and contractual guarantees—these are just a few of the true costs of whole life insurance. Consider these value comparisons: A $500,000 whole life policy might cost $400/month, but provides $500,000 immediate death benefit The same $400 invested monthly would take years to reach $500,000 (and market risk could reduce it) You get protection PLUS cash value growth, not just one or the other 2. Financial Protection for Loved Ones Insurance pays out to your loved ones in the event that you pass. This could mean your spouse, your children, or anyone else of importance to you. The loss of your life will be one of the most difficult things your family can experience. That time is made significantly harder by financial troubles of any kind. When you have life insurance in place, those troubles disappear for a time. This gives family the space to grieve and regroup without other stressors.  With life insurance money, families can keep food on the table, have a roof over their heads, pay funeral costs, hire childcare, and otherwise keep the house running. Your family won’t have to start a GoFundMe or file for bankruptcy. And if you have a policy on your spouse, you can have the comfort of knowing that you won’t have to worry if something happened to them. 3. Peace of Mind During Life’s Uncertainties Knowing that your family is going to be protected can ease a huge burden off your shoulders. And how much easier will it be to live your life knowing that no matter what, things will be okay? That your family will continue to be cared for the way they would if you were still alive. It provides a sense of absolute certainty that’s hard to find in life.  When you have certainty, you act with much more confidence and joy. If you can have peace of mind knowing your family will be looked after, the way you live your daily life will be completely transformed.  [29:00] “If you don’t believe in this principle, then just cancel your car insurance and drive across town. You will drive completely differently and inefficiently because you’re worried about your speed, you’re worried about how you make your turns. You’re worried about everything, and you can’t be efficient in your driving.” 4. Tax Advantages to Grow Wealth Faster Another benefit of Whole Life insurance is that it’s a very tax-advantaged asset. When you access your cash value via a policy loan, you get tax-free access to your money. (With some caveats). The death benefit is also passed to your heirs completely income-tax-free (no caveats). This is a significant advantage because accounts like a 401k are tax-deferred. Many people love that they can contribute to their qualified plans with pre-tax dollars. However, that tax bill has to come due eventually. This can translate to a significant tax bill in retirement when you least want to pay those taxes.  While you may pay your whole life insurance premiums with after-tax dollars, you’re getting the benefit of virtually tax-free access to your cash reserves when you want to use them. The stipulation is that if you overfund your policy so that it becomes a MEC, you lose tax advantages. You must also pay taxes if you withdraw funds (rather than borrow against) beyond the cost basis from the cash value. 5. Additional Retirement Income Strategies When you have a whole life insurance policy, you open yourself up to additional income strategies in retirement. Cash value is guaranteed not to drop because it’s not exposed to the whims of the stock market. This means you can use it as an income buffer to increase the longevity of your investment accounts. Dr. Wade Pfau calls this the Volatility Buffer.  Whole life insurance tends to make all assets work a bit better. By virtue of having it you have access to new strategies that will take your money further in almost every circumstance. Even if you elect to use other assets for future income, whole life insurance can be a good addition to your portfolio. 6. Automatic Savings & Forced Discipline When you open a whole life insurance policy, you’re creating a system of automatic savings for yourself.  [40:20] “This is extremely beneficial because many people think about saving if there’s money left over at the end of the month. It’s a side strategy.”  When you open a life insurance policy, your premiums feel like a bill. You’ve got to pay them each month in order to keep your policy in good standing. However, for every single premium payment, you’re contributing to your cash value. Just like your mortgage builds equity in your home, your premiums build equity in your policy.  You can then leverage this equity at any time for any reason because it’s not controlled by the banks. And when you do leverage it, your cash value stays intact, so it continues to compound uninterrupted. In this way, you can save money in an extremely efficient way.  7. Excellent, Efficient Cash Storage When you save money into a whole life insurance policy designed for Infinite Banking, you get safety, liquidity, and growth. Most assets only have two of those three qualities,