Many people commonly purchase term or whole life insurance around the mid-life years after getting a few free insurance quotes from different companies. During these years, you may have gotten married, bought a house and had children. The thought of leaving a spouse and children without financial support in the event of your passing may have been your primary reason for purchasing life insurance at the time. However, now that you are older and your kids are grown, you may be thinking about canceling your coverage to save money. After all, you may not think that the coverage is needed, and you believe that eliminating the premium from your monthly expenses would be beneficial. However, there are three good reasons why most people would benefit from keeping their life insurance policy active.
To Pay Off Debts
Later in life, many adults have minimal debts, and some have managed to achieve a completely debt-free status. However, if you have any debts at all, it is wise to keep your life insurance coverage in place. Your surviving spouse or children can use the life insurance benefits to pay these debts off in full after your passing. Even if you do not have any current debts, you never know what the future may hold. For example, you may have to take on debts related to home or car repair bills, medical expenses and more in the last few years of your life. When you have life insurance benefits, you can rest assured that all of your debts will be paid off and that they will not become a financial burden to a surviving spouse.
To Provide an Inheritance
Many people would love to provide their children and other loved ones with a substantial inheritance, but this does not always seem financially possible to do. For example, if you enjoy a long life and live to reach an advanced age, your entire retirement account balance may be nearly eliminated by the time you pass away. Life insurance benefits can be used to ensure that your loved ones receive the inheritance that you would like them to have. This can improve their quality of life for years to come and may even establish a legacy that can be passed down to future generations. Remember that your heirs will not pay estate taxes on life insurance benefits, but they may pay taxes on other assets they inherit from you. Estate taxes can be burdensome to pay, but passing down assets through a life insurance policy can help you to keep your inheritance funds intact for heirs to benefit from more substantially.
To Benefit From Cash Value
Another reason why you may want to keep your life insurance policy active relates to cash value accumulation. You may have bought a whole or universal life insurance policy many years or even decades ago that now has tens of thousands of dollars or more in cash value. By canceling coverage, you may obtain the cash value out of the policy, and you can use these funds as desired. However, the balance will not grow any further. Cash value in a life insurance policy can grow at a faster rate over time because of the benefit of compound interest. If you keep your policy active, you may be surprised at what the value may be within a few years. This cash value can be used as a safety blanket later in life. For example, if you do happen to live longer than you planned and run out of retirement account funds, you can tap into your cash value balance to pay your expenses.
Dropping life insurance coverage may help you to save money each month by eliminating a premium payment from your budget. However, it is important to carefully compare your monthly need for additional cash flow against the benefits associated with keeping your policy active. Each of these benefits can affect you and your loved ones in different ways, and they need to be reviewed carefully before you take decisive action.
Author Bio: Jeremy is a tech and business writer from Simi Valley, CA. He’s worked for Adobe, Google, and himself. He lives for success stories, and hopes to be one someday.