What are the benefits of life insurance?

Life insurance provides cash to help your beneficiaries replace your income when you die. This money goes to your beneficiaries and can be used for anything — funeral expenses, living expenses, college tuition, mortgage payments, donations to charity. A lifetime supply of pancake mix. A trip to the Outer Hebrides. A life insurance policy of their own. Whatever they want. The skies (and the amount of your death benefit) are the limit.

Death is expensive — the average funeral costs nearly $10,000 — not to mention medical bills after a hospital stay or extended illness. Life insurance can pay for these debts and give your family time to grieve.

Life insurance can also help your family pay the bills if you die. Think about your family ledger: if you didn’t bring in another paycheck, what would happen? Could your spouse make up the difference? A influx of cash can keep the surviving spouse in their home or your children in college, if not forever, at least until they can make another plan.

But there are more benefits to life insurance than a pot of money (though that’s nice).

Read on to learn about:

• Benefits of term life insurance

• Benefits of whole life insurance

• Benefits of life insurance riders

Benefits of term life insurance

There are several types of life insurance, but the most popular type, and the one that makes sense for most people, is term life insurance, which you buy to last until your debts are paid off (generally a 20- to 30-year term). The benefits of a term life plan include:

• Term insurance is easy to understand.
• Term life insurance is the cheapest life insurance you can buy.
• If you buy term life insurance when you’re young, 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 — you can increase your returns by investing and saving on your own.
• If you have a term life policy and can no longer afford it, you won’t lose anything more than the premiums you’ve paid if you decide to abandon the policy.

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 (or build up enough cash value to cover the premiums), you are covered until you die. Whole life insurance can cost four times the amount of term life insurance, but it also has its own benefits:

• Combines life insurance with an investing component.
• The cash-value component can be used as part of a complex estate-planning strategy.
• Works as a forced savings vehicle.
• You can often take out loans against the cash-value portion, although this could decrease your death benefit.

Benefits of life insurance riders

You can make your life insurance policy even more beneficial to you and your family by adding life insurance riders, or endorsements:

• Disability income rider — Provides you with a monthly stipend if you become unable to work. This rider can serve as an alternative to long-term disability insurance, though it’s less robust and doesn’t last as long as long-term disability coverage.

• 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 — 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 (less than 12 to 24 months to live, depending on the state), you can get all or part of the death benefit paid out before you die. While this can support your end-of-life care, it could leave your survivors with a lower death benefit.

• Long-term care rider — Takes money out of your death benefit to pay for long-term care, such as a nursing home.