Benefits of having life insurance

By Allstate

Last updated: April 2024

Life insurance can be an important part of your financial strategy. That's because a life insurance policy can help you ensure that your loved ones have a secure financial future after you pass away.

Not only can life insurance help cover your final expenses — it can also provide your family with a financial safety net by helping to replace your income or serving as an inheritance for a loved one.

Read on to learn about some of the ways life insurance benefits may be used.

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1. Paying final costs

Life insurance policy benefits can be used to help pay for final expenses after you pass away. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs and other unpaid obligations.

2. Paying off debt or replacing income

Life insurance benefits can help replace your income if you pass away. This means your beneficiaries could use the money to help cover essential expenses, such as paying a mortgage or college tuition for your children. It can also be used to pay off debt, such as credit card bills or an outstanding car loan.

3. Inheritance

Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. If you'd like to have a specific person receive your benefits as an inheritance, the Insurance Information Institute (III) suggests naming your chosen heir as the beneficiary on your policy. This will ensure that your life insurance benefits will go to the person or people you intended to receive it.

4. Paying federal or state estate taxes

Depending on state laws, your heirs may need to pay an estate tax upon receiving an inheritance. The III says that life insurance benefits may be used to partially or completely offset this cost. It'd be a good idea to consult with your insurance provider or a financial professional to understand how estate taxes may affect your beneficiaries.

5. Charitable contributions

Life insurance policies can also be created with your favorite charity as a named beneficiary, the III says. This can help ensure your philanthropic goals are met after you pass away, and that benefits are provided to your charity of choice.

The benefits of different types of life insurance

Life insurance can help your family or loved ones if you pass away. There are different kinds of life insurance, like term life insurance and whole life insurance, and each has its own unique benefits, depending on you and your family’s needs.

Benefits of term life insurance

Term life insurance may be good for those who only want coverage for a specified amount of time – say, until your mortgage is paid off or your child graduates from college. Coverage is set for a certain time frame, which is typically 10 to 30 years. If you pass away within that time frame, your beneficiaries receive the payout. Term life insurance premiums are typically less expensive than whole life policies because you’re only paying for coverage for a specified number of years, as opposed to permanently.

Benefits of whole life insurance

Whole life insurance is more like buying protection that lasts your whole life. It's a bit more expensive, but it builds up some savings over time, called cash value, that you can use later. A portion of each premium you pay goes toward not only insuring your life but also toward your cash value.

Can I use life insurance benefits while alive?

Usually, life insurance pays money to your loved ones after you're gone. But, as mentioned above, some types, like whole life insurance, have a savings part called cash value. It can even go toward paying your life insurance premium, depending on your policy. Additionally, if you decide to cancel your life policy, you may have access to the cash savings – minus taxes or loans you still owe.

Why is life insurance so important?

Life insurance can be a sensitive topic, but it can help provide a more secure financial future for your family if the unexpected happens. Contacting your insurer can help you better understand the types of life insurance and determine what kind of policy fits you and your family's needs.