A solid financial plan will typically include a range of financial options to help you balance today’s priorities with future goals. It’s about accumulating wealth for future goals, but also about protecting your money from life’s curveballs. With that in mind, most people understand the importance of accumulating savings and of having a life insurance death benefit, but not as many people understand that life insurance can actually help with both.
Do I need life insurance if I have a savings account?
Few people have enough saved to pay for the long-term needs of the people who depend on them, particularly as they’re raising a family. That’s one of the key reasons that people get life insurance. Life insurance will provide financially for your loved ones if you pass away.
How does a life insurance policy complement a savings account?
In addition to the death benefit, some types of life insurance also include a cash value component that grows over time. This is money that you are able to access at any time and for any reason during your life — although doing so will reduce the death benefit.1
A whole life insurance policy from a mutual company may qualify for dividends, which can help you grow your life insurance and cash value more quickly than any guarantees your policy may offer.
What type of life insurance policy has a cash value component?
Permanent life insurance, the type that lasts for your lifetime, has a cash value component. The cash value grows over time.
There are several types of permanent life insurance, including whole life, variable universal life, and universal life. Although they all have different features, as long as you pay the required premiums and keep your policy in place, it will build cash value that you can access during your life and will pay a death benefit when you die.
Term life insurance, which is less expensive than permanent life insurance for the same amount of death benefit, does not have a cash value component. Term life insurance only offers a death benefit, and pays the death benefit only if you die during the policy's term.
Can I afford to pay for life insurance and add to my savings account?
The best financial planning will include options like investments, savings, life insurance and more. That means you’ll want to balance putting money toward savings, investments and life insurance at the same time. The beauty of permanent life insurance is that it can help you protect your family with a death benefit while also accumulating stable funds that you can access while you’re alive.
When budget is a concern, many people use a combination of permanent life insurance and term life insurance. This can allow you to cover your full death benefit need at a cost you can afford, while also taking advantage of the added savings component of permanent life insurance.
A financial advisor can help you tailor a life insurance policy that fits your budget and supports your overall financial plan.
1Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.