Is Life Insurance Worth Buying?

Martin Severe

Here are some pros and cons one should consider before buying life insurance. 


 

Pro: tax-deferred growth

Permanent life insurance policies which have an investment component, allow you to grow wealth on a tax-deferred basis. This means you do not pay taxes on any interest, dividends, or capital gains on the cash-value component of your life insurance policy until you choose to withdraw the funds. This is similar to the tax benefits you enjoy with certain retirement accounts. If you are maxing out your contributions to these accounts every year, investing in permanent life insurance for tax reasons will benefit you.


 

Pro: lifetime coverage

Another benefit of permanent life insurance is that you don’t lose your coverage after a set number of years. A term policy ends when you reach the end of your term, while permanent policies cover you till the very end. If you anticipate people being financially dependent on you beyond the set number of years of a typical term policy (for example, a disabled child), this benefit might be crucial for you.


 

Pro: borrow against the cash value

If you need money to buy a home or pay for education, you can borrow against the cash value of a permanent life insurance policy. 

 

Pro: accelerated benefits

You may be able to receive 25% to 100% of your permanent life insurance policy’s death benefit before you die. This is if you develop a specified condition such as a heart condition, stroke, or end-stage renal failure. The upside of accelerated benefits is you can use them to pay your medical bills and possibly enjoy a better quality of life in your last months.


 

Cons of permanent life insurance

While permanent life insurance has many benefits, there are some potential disadvantages to keep in mind. Cost is one of the most important ones. Compared to term life insurance policies, permanent life insurance usually requires you to pay higher premiums. If you don't need insurance coverage for life, you may be paying premiums unnecessarily.


 

Permanent life insurance can also have tax implications if your beneficiaries choose to surrender a policy or you pass away with an outstanding loan. And taking loans or accelerated benefits could reduce the death benefit that's paid out to your beneficiaries when you die.