When clients contact us at IBUSA, it’s typically because they’ve already made the decision to purchase a life insurance policy for themselves or a loved one. Rarely do we have discussions about the importance of life insurance and why someone might need it in the first place.

However, there are instances when individuals are undecided and may not be sure whether they require a life insurance policy or not. This may be because they’re uncertain about the benefits or because someone else is pressuring them to get insured.

In such cases, we like to take the time to discuss the most common reasons why someone might need or want a life insurance policy. This way, they can determine for themselves whether or not life insurance is important.

With this in mind, let’s begin our discussion of whether or not life insurance is important by first defining exactly what it is.

What is life insurance?

Life insurance is a contract between an individual and an insurance company that provides a death benefit to the individual’s designated beneficiaries upon their death. In this contract, the insured individual agrees to pay premiums to the insurance company in exchange for the policy. In the event of their passing, the insurance company pays out a lump sum of money to their beneficiaries.

Purpose of life insurance

The purpose of life insurance is to provide financial protection and support to the policyholder’s beneficiaries in the event of their unexpected death. By purchasing a life insurance policy, the policyholder is essentially entering into a contract with an insurance company, agreeing to pay regular premiums in exchange for the promise of a lump-sum payment to their beneficiaries upon their death.

The death benefit provided by the life insurance policy can help the policyholder’s loved ones cover expenses such as funeral costs, outstanding debts, and living expenses. It can also provide a source of financial stability and security, allowing the beneficiaries to maintain their standard of living and meet their financial obligations even in the absence of the policyholder’s income.

Types of life insurance policies

There are several types of life insurance policies available, each with its own unique features and benefits. Here are three common types of life insurance policies:

1. Term Life Insurance: This type of policy provides coverage for a specific period of time, typically 10, 20, or 30 years. If the policyholder dies during the term, their beneficiaries receive a death benefit payout. Term life insurance policies are generally more affordable than permanent life insurance policies, making them a popular choice for those who want to provide financial protection for their loved ones without breaking the bank.
2. Whole Life Insurance: This is a type of permanent life insurance that provides coverage for the policyholder’s entire life. Whole life insurance policies typically have higher premiums than term life insurance policies but offer several benefits, including a guaranteed death benefit, a savings component called cash value that can grow over time, and the ability to borrow against the policy’s cash value.
3. Guaranteed Issue Life Insurance: This type of policy is designed for individuals who may have difficulty getting approved for other types of life insurance due to age or health concerns. Guaranteed-issue policies do not require a medical exam (no medical exam life insurance) and have minimal underwriting requirements. However, they typically have higher premiums and lower death benefits than other types of life insurance policies.

It’s important to carefully consider your individual needs and circumstances before selecting a life insurance policy. An experienced insurance agent or financial advisor can help you understand the different types of policies available and determine which one is best for you.

Common reasons why people buy life insurance

There are many reasons why someone may choose to buy a life insurance policy. Here are some of the most common reasons:

1. Provide financial protection for loved ones: The primary reason that most people purchase life insurance is to provide financial protection and support to their loved ones in the event of their unexpected death. The death benefit provided by the policy can help cover expenses such as funeral costs, outstanding debts, and living expenses, ensuring that the policyholder’s beneficiaries are able to maintain their standard of living and meet their financial obligations.
2. Pay for children’s education: For parents, life insurance can be a way to ensure that their children are able to afford a college education, even if the parents are no longer around to provide financial support.
3. Cover business expenses: Business owners may purchase life insurance to ensure that their business can continue to operate in the event of their unexpected death. The death benefit provided by the policy can help cover expenses such as outstanding business debts, employee salaries, and other operational costs.
4. Leave a legacy: Some people choose to purchase life insurance to leave a financial legacy for their loved ones or to make a charitable donation upon their passing.
5. Lock in insurability: Purchasing life insurance when you are young and healthy can help ensure that you are able to get coverage at a lower premium rate, even if your health declines in the future.

Overall, buying a life insurance policy can provide peace of mind and financial security for both the policyholder and their loved ones, ensuring that they are prepared for the unexpected and able to weather any financial storms that may come their way.

Possible benefits for the insured

Not all benefits of owning a life insurance policy are reserved for the insured beneficiary. Some policies allow their policyholders to purchase additional riders, commonly referred to as “living benefits,” which can benefit an insured while they are still alive.

Living Benefits:

Living benefits, also known as accelerated death benefits, are a feature of some life insurance policies that allow the policyholder to access a portion of their death benefit while they are still alive. Typically offered as an optional rider to the life insurance policy these optional benefits can provide financial support to the policyholder in the event that they are diagnosed with a terminal illness or other specified medical condition.

When the policyholder qualifies for living benefits, they can access a portion of their death benefit to pay for medical expenses or other costs associated with their illness. The amount that can be accessed varies depending on the policy and the specific terms of the rider but typically ranges from 25% to 100% of the death benefit.

By accessing the living benefits, the policyholder is essentially borrowing against their death benefit, which means that the amount that is paid out upon their death will be reduced by the amount of the living benefit that was paid out.

Living benefits can be a valuable feature of a life insurance policy, as they provide additional financial support to policyholders during a difficult time. However, it’s important to carefully review the terms of the rider and understand the potential impact on the policy’s death benefit before deciding to access the living benefits.

Potential disadvantages of owing a life insurance policy (with rebuttals)

While there are many benefits to owning a life insurance policy, there are also potential downsides to consider. Here are a few potential disadvantages:

Cost: Depending on the type of policy and the amount of coverage you need, life insurance premiums can be expensive. If you’re on a tight budget, the cost of life insurance may be prohibitive.

While life insurance premiums can be expensive, the cost of not having life insurance can be even higher. If something were to happen to you, your loved ones could be left with significant financial burdens, such as funeral costs and outstanding debts.

Additionally, there are many affordable life insurance options available, such as term life insurance, which can provide high levels of coverage for a specific period of time at a relatively low cost.

Health qualifications: Some types of life insurance policies require a medical exam and may have health qualifications that you must meet in order to qualify for coverage. If you have a pre-existing condition or a history of health issues, you may not be able to qualify for the coverage you need.

While some types of life insurance policies require a medical exam and have health qualifications, there are also options available that do not require a medical exam or have more lenient health requirements.

Additionally, even if you do have health issues, it’s still possible to qualify for life insurance coverage, although the premiums may be higher.

Complexity: Life insurance policies can be complex and difficult to understand, especially if you’re not familiar with insurance terminology or the various types of policies available.

While life insurance policies can be complex, working with an experienced insurance agent or financial advisor can help you understand your options and choose the right policy for your needs.

Additionally, many insurance companies offer educational resources and tools to help you navigate the process.

False sense of security: Owning a life insurance policy can provide peace of mind, but it’s important to remember that life insurance is not a replacement for other types of financial planning, such as saving for retirement or building an emergency fund.

While life insurance should not be the sole focus of your financial planning, it can provide an important safety net for your loved ones. By providing financial protection in the event of your unexpected death, life insurance can help ensure that your family is taken care of and has the resources they need to move forward.

Limited flexibility: Some types of life insurance policies may have limited flexibility when it comes to changing coverage amounts or accessing cash value. It’s important to fully understand the terms and conditions of your policy before purchasing.

While some types of life insurance policies may have limited flexibility, there are also options available that offer more flexibility in terms of changing coverage amounts or accessing cash value.

Additionally, it’s important to carefully review the terms and conditions of your policy before purchasing to ensure that it meets your needs and offers the level of flexibility you require.

Although there are possible drawbacks to possessing a life insurance policy, for many, the advantages outweigh the expenses. However, ultimately, it is your responsibility to make this decision.

One thing we can say with certainty is that it is impossible to accurately determine whether insurance is worth it unless you know its cost. Therefore, we urge those who have even the slightest interest to contact us, as you may be pleasantly surprised by how affordable your insurance can be.