15 Life Insurance Benefits Everyone Should Know

Whether starting a family or planning for the future, life insurance is a necessary financial option for everyone to consider. If the worst happens, you want the people who depend on you to be financially protected. Plus, you want to pay for those major expenses in the future. So, what type of life insurance is best for you? What are the benefits of life insurance? Let’s explore this:

1. It helps you protect a beneficiary’s future

Life insurance is a great way to financially support a loved one, like a spouse or children. With a life insurance policy, you know you can care for their futures. However, your beneficiary doesn’t necessarily need to be a person. Your life insurance can also pay out to an organisation or trust. For example, life insurance can be an excellent way to support a charity you admire.

Life insurance is also a good option if you don’t get coverage through your pension plan or job.

2. Replaces the loss of your income

Think about it – life insurance insures your life. The primary function of life insurance is to replace the loss of the household breadwinner’s income in the event of their death. So how much coverage should you go for? Most people recommend you take out something like four to six times the yearly gross salary of the person getting insured. This is a good rule of thumb. However, it’s also worth considering your circumstances.

If you have children, how many do you have? What household bills do you have, and what are your living expenses? What costs could you have in the future? Your coverage will need to last longer if you have young children.

3. Protects what you need it to

As we all know, the more of a risk an insurance company sees you as, the more money you will typically have to pay. Your current age, health, whether you smoke, and how long you want your policy to last are all factors in how much your policy will cost. Of course, when you take out your policy, the healthier and younger you are, the better the price. However, if needed, extras like indexation or specified illness cover are a good idea.

Indexation is a feature that increases the amount you’re covered for each year. This is so that your payout will keep up with inflation. Another popular extra is specified illness cover, which pays a tax-free lump sum in the event you are diagnosed with a severe illness covered by your policy. There’s also convertible term cover, which lets you extend your policy’s term or length without needing further medical examination.

4. You don’t usually need a medical examination

You may need a short medical examination depending on the insurer, age, previous medical history, or type of cover you want to take out. However, you won’t typically need a medical examination to gain cover if you are healthy. Even if your insurer does request that you have a medical exam, the life insurance company will typically organise and take on any costs associated with the exam.

5. Life insurance payments are usually tax-free

Did you know that all payments from life insurance are paid out completely tax-free? So when taking out your policy, the person to receive the amount will always be the person you have named as your beneficiary.

Depending on your beneficiary’s relationship with you, your beneficiary may have to pay some inheritance tax. They may also have to pay taxes depending on how much they receive. Other laws in your country may also affect their amount at the time of the payout. But generally, life insurance payments are tax-free.

6. You can cover mental health disorders

When you apply for life insurance coverage, you will be asked to disclose whether you have suffered from or received medical advice or treatment for your mental health over the last five years. This includes going to therapy, taking anti-depressants, or taking time off work for your mental health.

Mental health disorders are subjective but are a normal part of everyday life. No matter what you suffer from, insurers mainly want to know if you are getting help to manage your condition and that it is under control. If they believe this is so, it will be reflected in your insurance quote.

7. It can work with any coverage you get through work

The coverage you get through work is most likely a death-in-service benefit. This coverage is typically linked to a company’s pension scheme. A death-in-service pays out if you die while employed with a company. This gives you some coverage. However, employee benefits are prone to change in the future – especially if you become furloughed indefinitely or you move jobs. A death-in-service benefit also typically gets capped at 4 times your earnings. So, you will most likely need more coverage if you have multiple dependents.

Life insurance gives a policyholder much more protection and safety in various scenarios. It also means more protection for named beneficiaries.

8. You can take out different lengths of cover

There’s a wide variety of different life insurance types. So, before you take out one type of cover, you should weigh up all your options.

First, there’s term life insurance. This insurance can be taken out for an agreed-upon period between you and your insurer. Term life insurance is a common choice for parents who want to ensure their family has protection until their children turn 18.

Then there’s whole life insurance. This policy type lasts for the whole of the person’s life and ensures that policy beneficiaries get a lump sum when the insured person passes away. But, again, this is typically associated with inheritance planning since inheritance tax can otherwise make inheriting large estates a costly expense.

So, consider how long you’ll need it before taking out life insurance. Doing this will help you make the right choice. Then, speak to a qualified financial advisor to be sure, or compare online and check out the life insurance choices at OneChoice.

9. There are different types of protection

Did you know there are different types of coverage? However, both life insurance and mortgage protection have similarities. For example, both policies pay a tax-free lump sum when the policyholder dies.

However, life insurance is specifically intended to give financial security to dependents and beneficiaries who would otherwise lose their main source of income if the policyholder died. A life insurance policy pays for daily living expenses, education costs, credit card debt, etc.

Whereas mortgage protection insurance is aimed more at paying off the remaining amount of your mortgage should one or both policyholders pass away before your mortgage gets completely repaid. Mortgage protection insurance is generally required by law. The critical difference is mortgage protection pays the lump sum to your mortgage lender rather than a named beneficiary like your loved one.

Life insurance also means your coverage stays the same for the complete duration of your policy. You can increase your cover if you go for indexation, too. Mortgage protection just decreases by how much you have left on your mortgage.

10. The amount you pay will stay the same

When you agree on a premium with your insurer, this premium should not increase for the duration of the policy’s term. But, of course, your premium could still rise for a couple of reasons. For example, if you go for a long-term length, you can expect your increasing age to be factored into the price you pay at the outset. Or, additional benefits and extra cover, like specified illness, could drive up your payment. But in general, life insurance is a reliable form of insurance.

11. You get good customer service

We’ve all heard those horror stories of insurers who refused to pay out or made it difficult to process the claim. Of course, price is the main factor when looking for a life insurance provider, but good customer service is also a big thing to consider if you have a problem with your insurance or need to process a claim. Thankfully, all the insurers on OneChoice have excellent customer service.

12. There’s a money-back guarantee

Have you heard of the cooling-off period? This is the 30-day period when you can cancel your insurance policy after starting it. So whether you’ve found a better offer somewhere else or realised the coverage didn’t suit your needs, all consumers have the right to cancel a policy within this timeframe and receive a full refund of anything they’ve paid.

13. You can provide for someone or something you care about

Did you know you can’t just take out a life insurance policy for anyone? If you want to take out a policy, you must first get the organisation or person’s permission to do so if they are old enough. This is part of “insurable interest”. Insurable interest refers to how you must undoubtedly be able to show how the person will suffer financially if you pass away.

14. You can switch your coverage

You can change your life insurance coverage if your needs change. It’s not quite the same as changing your house insurance or a utility provider – switching life insurance is nowhere near as easy and is not usually necessary. However, switching life insurance is possible if a new policy means better value or coverage.

15. It can allow you to invest

A wide range of life insurance products are out there, all designed for different people in different situations. One unique form of life insurance is variable life insurance. This type of life insurance has a variable growth rate on its cash value. With variable life insurance, rather than earning interest at a typical guaranteed minimum rate, such as you usually would with a whole life policy, variable life insurance instead invests a part of your premium into a select set of mutual fund sub-accounts.

Variable life insurance thus gives your money more potential for growth. But, of course, this form of insurance also means more risk. That’s why some insurers give you the option to put a certain amount of your funds into a fixed account which isn’t subject to market fluctuations. That said, your insurance payout is still ultimately at the mercy of the stock market. You just have to hope it doesn’t go into a slump.