What are the benefits of life insurance?

Life insurance provides a tax-free payout that protects your family's financial health if you die.

Headshot of Adam Morgan

By

Adam MorganEditorial DirectorAdam Morgan is an editorial director who leads the Policygenius editorial team. Previously, he led editorial teams matrixed across multiple financial publications at Red Ventures — including Bankrate, NextAdvisor, Million Mile Secrets, and others. As a journalist, his work has appeared in Esquire, Scientific American, The Guardian, Los Angeles Times, and elsewhere.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
|

Reviewed by

Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|2 min read

Expert reviewedExpert reviewedThis article has been reviewed by a member of ourFinancial Review Council to ensure all sources, statistics, and claims meet the highest standard for accurate and unbiased advice.Learn more about oureditorial review process.

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Life insurance provides cash to your dependents when you die. This money replaces the income you provided while you were alive and can be used for anything — funeral expenses, living expenses, college tuition, mortgage payments, and even everyday bills and expenses.

This benefit protects your family's financial health. You can also add on other benefits, such as riders, that may pay out while you are still alive.

Life insurance terms you should know
  • Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.

  • Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.

  • Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.

  • Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.

  • Insured: The person who is covered by the insurance policy.

  • Policy: The legal document that includes the terms and conditions of your life insurance contract.

  • Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.

  • Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.

  • Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.

  • Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.

  • Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.

  • Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.

Financial benefits of life insurance

When you buy a life insurance policy, a robust enough policy won't just cover the basics — it’ll cover your dependents’ future and standard of living, too.

“We typically recommend people aim for 10 to 15 times their income in life insurance,” says Nicholas Mancuso, former senior operations manager of Policygenius’ advanced planning team. This amount ensures your beneficiaries are covered for the long term.

Because a life insurance benefit is a tax-free lump sum of money, your family can use the cash as payment for housing costs, student loans, childcare, debt, day-to-day expenses, or however they wish.

Read more about the advantages of having life insurance

Benefits of term life insurance

There are several types of life insurance, but term life insurance is the best choice for most people because it is the most affordable. A term policy is meant to last until your debts are paid off (generally a 20- to 30-year period while people depend on you most). Some benefits of a term life plan are:

  • It's the cheapest life insurance you can buy.

  • If you buy term life insurance when you’re in your 20s, 30s, or 40s, you can lock in low rates.

  • Term life insurance is purely an insurance product and doesn’t have a savings or investment component. This is a good thing — investing and saving on your own yields higher returns.

  • If you have a term life policy and no longer need it, you won’t lose anything more than the premiums you’ve paid.

Learn more about term life insurance

Benefits of whole life insurance

Alternatively, whole life insurance is a permanent insurance product that combines investing and life insurance. Once you buy a policy, as long as you continue to pay premiums, you are covered until you die. According to Policygenius data, whole life insurance is much more expensive than term — sometimes as much as five to 15 times the cost. But for certain people with niche financial needs, it also has its own benefits:

  • Combines life insurance with a savings-like component called the cash value.

  • The cash value component can be used as part of a complex estate planning strategy.

  • Works as a forced savings vehicle.

  • You can take out loans against the cash value portion.

Learn more about whole life insurance

Ready to shop for life insurance?

Benefits of life insurance riders

You can make your life insurance coverage even more robust by adding life insurance riders. Riders are optional add-ons to a life insurance policy that provide some coverage in unique situations. Here are some rider options for you to consider when you buy life insurance:

  • Disability income rider: This provides you with a monthly stipend if you become unable to work due to a disability.

  • Waiver-of-premium rider: If you become disabled, you can keep your life insurance policy and have your payments waived until your disability ends.

  • Term conversion rider: This allows you to convert your term life insurance policy into a permanent life insurance policy.

  • Accelerated death benefit rider: If you’re diagnosed with a terminal illness, you can get all or part of the death benefit paid out before you die.

  • Long-term care rider: If you require long-term care, such as a nursing home, this rider takes money out of your death benefit to pay for the expenses.

The most obvious benefit of life insurance is the tax-free cash payout for your loved ones if you die. Financial protection is the most important asset life insurance provides for you and your family.

But there are other major benefits, depending on the type of life insurance policy you buy and which additional riders you select. Your specific policy should be the most beneficial to you and your financial needs, so shop around and compare policies to see what’s best for you.

Author

Adam Morgan is an editorial director who leads the Policygenius editorial team. Previously, he led editorial teams matrixed across multiple financial publications at Red Ventures — including Bankrate, NextAdvisor, Million Mile Secrets, and others. As a journalist, his work has appeared in Esquire, Scientific American, The Guardian, Los Angeles Times, and elsewhere.

Editor

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Questions about this page? Email us at .