Life insurance is often viewed simply as a way to provide for loved ones after you pass away. But its benefits extend far beyond covering final expenses. There are different ways having life insurance can protect you and your family during life’s unexpected events.

Life Insurance as a Swiss Army Knife

Like a Swiss Army knife’s many handy tools, life insurance policies offer an array of financial solutions now while you’re alive and later after you die. These instruments serve as more than just a payout to cover funeral costs. They provide living benefits should you become critically or chronically ill. Their tax-favored status enables families to preserve more of their inheritance. And cash value life insurance allows for supplementing retirement income needs.

In this guide, we’ll uncover some of the lesser-known advantages of making life insurance part of your financial planning strategy. Protecting what matters most today and securing your legacy for tomorrow.

Key Takeaways

• Life insurance benefits not only heirs but also policyholders while alive
• Payouts are income tax-free to give heirs maximum inheritance
• Can access death benefits if terminally or chronically ill
• Cash value policies supplement retirement savings

How Life Insurance Policies Work

First, a quick primer on life insurance. In exchange for premium payments, an insurance company provides a death benefit to your designated beneficiaries when you pass away. This lump-sum payout helps cover final costs, daily living expenses, and more. There are two primary types:

• Term life – Temporary coverage with guaranteed level premiums
• Permanent (cash value) life – Lifelong coverage with an investment component

Now let’s dive into some of the most useful yet overlooked ways having life insurance safeguards financial wellbeing.

5 Top Benefits of Life Insurance

1. Life Insurance Can Cover Final Expenses

Few families budget for this sudden expense when grieving lost loved ones. A life insurance policy ensures:

• Funds to pay for funeral arrangements and medical bills
• Avoiding dips into emergency savings or retirement accounts
• Final expense policies as low as $100/month

2. Your Dependents Will Have Money For Living Expenses

Breadwinners with children or elderly parents rely upon their income to support dependents. An excellent rule of thumb is to carry a death benefit worth 10-15 times your annual earnings. This ensures adequate coverage for ongoing costs like:

• Mortgage payments or rent
• Groceries and utilities
• College savings contributions
• Other critical daily expenditures

Consult with an independent insurance agent to determine the appropriate amount to meet your family’s unique needs.

3. Life Insurance Payouts Are Tax-Free

Unlike other assets, life insurance benefits are generally not subject to income tax. Policyholders can pass up to $12.06 million estate and gift tax-free for 2023. For estates exceeding this exemption amount, proceeds offset estate taxes owed, enabling heirs to keep more of their inheritance.

4. You Can Get Coverage For Chronic & Terminal Illnesses

Many policies offer accelerated death benefits providing early access to part of the death benefit if diagnosed with a chronic or terminal illness. Useful to:

• Pay for experimental treatment options
• Cover costs for in-home caregiving/nursing
• Maintain mortgage payments if unable to work
• Avoid liquidating retirement savings prematurely

Such “living benefits” endorsements provide crucial financial assistance when families need it most.

5. Policies Can Supplement Retirement Savings

Permanent life insurance accumulates cash value on top of the death benefit, gaining interest at guaranteed rates. Policyholders can access this cash value via tax-free loans or withdrawals to supplement retirement income sources. Useful applications include:

• Creating guaranteed income streams
• Funding major purchases without liquidating investments
• Paying off the remaining mortgage balance
• Covering unexpected healthcare expenses

This benefit does not replace traditional retirement accounts like 401(k)s and IRAs which also enjoy tax savings. But it serves as another financial lever in retirement.

An Underutilized Financial Tool

Despite the many advantages highlighted above, many underestimate life insurance’s value for income replacement, inheritance optimization, chronic illness coverage, supplemental retirement benefits, and more. It remains an underutilized financial tool by the average American. Particularly for low-moderate income families struggling to save adequately for retirement and other goals.

Securing suitable life insurance with the Mountain Plains Agency is crucial for your family’s financial well-being. Contact us or click here for a complimentary consultation. Our licensed agents provide tailored solutions to safeguard your legacy. Share your thoughts on how life insurance fits into your broader financial plan below.