Can Life Insurance Provide More Benefits Than a Good Savings Plan?

Mike Valles By Mike Valles, 11th Apr 2014 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Money>Insurance

People often say that they can do just as good with a savings plan as they could with a life insurance policy. This is not at all true. There are several ways in which a life insurance policy will give you benefits that a savings plan can never provide. One primary way is that a life insurance policy is instantly worth its face value as soon as you make your first premium payment.


It is not too unusual to hear from time to time that some people believe that they could simply put money into a savings program of some kind and use it to provide their family's needs in the event of their death. Is this really the same kind of benefits that could be obtained by having a traditional life insurance policy?

It is true that there is one way in which putting money into a savings account instead of buying a life insurance policy could be just as good. This would probably be true if you already have large sums of money that can be quickly made accessible. In that case, you probably do not need life insurance. Most people, though, do not have this option.

Life Insurance Policies Are Instantly Worth the Face Value

Perhaps the largest benefit of a life insurance policy is that it instantly is worth the face value as soon as you buy it. For the price of a one month's premium you can instantly obtain a life insurance policy worth many thousands of dollars, possibly even worth hundreds of thousands of dollars. This means that if you should die the day after you purchased the life insurance policy that your beneficiaries would receive the full face value. This could never be done with a mere savings plan.

By having a good life insurance policy, if it was large enough, it would mean that all of your debt could be paid off and your loved ones provided for in the near future. If you died, it could pay for your mortgage, your car payments, credit card debt, and education debt – but it will depend on the size of the policy you buy. Truthfully, though, there is no guarantee that you will die at all while covered, so it is a little bit of a risk.

A Life Insurance Policy Passes Money to Your Beneficiaries Tax Free

When you die with an intact life insurance policy, your appointed beneficiaries will receive the designated money from the policy on a tax free basis. A savings plan with a payable on death option will do the same thing because a beneficiary is named. Any money that goes into your estate, however, will be subject to estate taxes.

Money Is Accessible

In a whole life, or permanent life, type of life insurance policy, the cash value builds up over time. A percentage of the cash is available to use in an emergency. You can get access to it at any time in two forms: the cash value is a specific amount detailed in the policy based on the number of years you have had the policy; and the surrender value is the total amount of cash you can get if you cancel the policy. Getting the cash value will enable you to keep the policy going, but it will only be worth the face value minus the cash you withdrew – with interest.

Some policies will return your cash value when you reach a certain age. Also, other policies will build interest and you can get both the cash value and the interest, but any amounts withdrawn above what you paid for the policy will be charged taxes.

Life Insurance Is Very Affordable When Young

When you are still young and in good health, life insurance – whether whole life or term life – is very affordable compared to the cost of buying it when you are 55 or older. Buying young is the time when you will be able to get a great deal on your life insurance. With a whole life policy, your premiums are set for as long as you own the policy, and with term life, you get low cost insurance for a minimal cost, and premiums are set for the length of each term.

Life insurance varies in cost and benefits from one company to the next. Be sure to get several life insurance estimates before buying, and this will help you get the most value for your money.


Life Insurance, Life Insurance Estimates, Life Insurance Policy

Meet the author

author avatar Mike Valles
Hi. I have been a full-time freelancer for over 9 years. Most of the material I write on deals with personal finances, education, and news. I am a published author with a book and several eBooks.

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author avatar Sivaramakrishnan A
11th Apr 2014 (#)

One needs a mix of savings and whole life policies and they should form part of of our savings plans. Thanks for the share, Mike - siva

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author avatar Mike Valles
11th Apr 2014 (#)

Yes, a balance is best; but a savings plan without life insurance is not a good idea.

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