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The benefits of life insurance: What you need to know

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Life insurance is a symbol of dedication to the people we care about – empowering you to protect your loved ones while also potentially benefiting financially.

Despite the advantages of life insurance, only half of Americans have life insurance coverage, while 39% of those with insurance wish they would have purchased coverage younger, according to a 2021 Life Insurance Barometer study by LIMRA.

Many people discover too late that life insurance can support their financial goals while they're alive. The younger you are, the more benefits you can enjoy.

What is life insurance?

Simply defined, life insurance is a contract between you and the insurer where you pay monthly premiums in exchange for a guaranteed payment to your beneficiaries if you die. Life insurance is essential to a responsible, value-driven financial strategy – and there are two primary types of life insurance that can help suit your financial and life goals:

1. Term life insurance

If you want to protect loved ones for a certain chapter of your life – like while your children are financially dependent on you – term life insurance allows you to choose affordable coverage for a 10-, 20- or 30-year period.

2. Permanent life insurance

If you don't want your life insurance to expire, then permanent life insurance options like whole life, universal and variable universal life insurance may better suit your goals. The most common and simplest form of permanent life insurance is whole life insurance, which lasts your whole life (as long as premiums are paid) and includes a guaranteed death benefit and cash value component.

Explore the differences in Term vs whole life insurance: Everything you need to know.

Life insurance can provide transition time to mourn. That matters.
Todd Yeiter, director of advisor support at Thrivent

Do you need life insurance?

No matter your age or needs, there are many circumstances when it can make sense to purchase life insurance.

You may want to consider life insurance if you:

  • Want to remove the financial burden from your family should something happen to you. The most essential need for families to have life insurance coverage is to replace lost income when you die – and it can potentially cover 20+ years of income. Beyond those essential needs, the right coverage an provide further comfort for your family. "Life insurance can provide transition time to mourn. That matters." says Todd Yeiter, director of advisor support Thrivent.
  • Have minor children, or young adult children who still need financial support. You can choose a term insurance option to protect their kids for as long as they're supporting them financially.
  • Have dependents with special needs. You can secure life insurance benefits while remaining eligible for government funded support through a special needs trust.
  • Have a spouse you want to help ensure is taken care of down the road. Adults who co-own property together can protect their investment by using life insurance in their buy-sell agreements. Additionally, married couples can use to life insurance to help replace income in retirement due to loss of Social Security or their pension benefits at the death of a spouse. 
  • Want to leave a tax-efficient legacy. Families that anticipate income and estate taxes or need help paying for funeral expenses can look forward to the federal income-tax-free benefit received when the payout is given to their beneficiaries. Also, if you are preparing a legacy plan, you may find that using life insurance as an asset to give to heirs can have more advantages like flexibility, options and guarantees.
Ask yourself: Who do I want to be present for? Who's important to me? When you consider these, life insurance can make a significant difference, and you can evaluate the connection between its price and its impact.
Todd Yeiter, director of advisor support Thrivent

The benefits of life insurance

Whether you currently have dependents, you plan to in the future, or you're passionate about leaving a legacy to the organizations and people you love, life insurance is incredibly useful for helping you reach your financial and life goals.

"When you think about your life insurance needs, it starts with self-reflection: who depends on you? How long do you need to provide your kids? But also, how do you want to make a difference? Life insurance can support these goals," says Yeiter

Consider these 7 key benefits of life insurance:

1. Life insurance offers income replacement and support for your loved ones

With a guaranteed death benefit that pays out when you pass away, you have options to protect your family for a certain time period or for your whole life. "We have life insurance for the benefit of each other and our kids – protection is for the survivors," says Yeiter.

2. Life insurance can give you the ability to make an impact and leave a legacy

Life insurance gives you the financial support to honor a passed loved one in the way that you want to. "If something happens to my wife, I want to do something significant – possibly make a sizeable donation to a place or cause that is meaningful in her heart. It's not just about income replacement, it's about institutions important for our girls and showing her legacy in a meaningful way." says Yeiter.

3. Term insurance offers affordable coverage to fulfill a short-term need

Whether you want to put your kids through school, pay a mortgage, or ensure your aging parents will be protected if something happens to you, term life insurance offers short-term coverage that's more economical than permanent life options.

4. Permanent life insurance can be used as an asset while you're alive

Permanent life insurance options allow you to potentially grow your money through your cash value component. Some policies even include opportunities to earn annual dividends (though dividends are never guaranteed). Universal life insurance also provides potential for savings growth, while variable universal life offers the opportunity for market-driven growth.

5. Life insurance can be tax-efficient

With permanent life insurance policies, you can transfer your death benefit to beneficiaries income tax-free, no matter how big that sum is.1 Money within a life insurance policy is also one of the only financial items that won't increase taxes on your Social Security income.

6. Life insurance provides living benefits for individuals & business owners

Whole life insurance can offer some unique living benefits in addition to the death benefit. For example, an optional waiver of premium rider on whole life insurance contracts can pay premiums if you meet the definition of disabled.

This may best be explained through an example. A few years back, a Thrivent financial advisor served a client – let's call him Robert to preserve his anonymity – who purchased a whole life insurance contract with key person coverage to protect his business if he died prematurely.

Unfortunately, several years after buying the life insurance contract, Robert became totally disabled. Thrivent paid the whole life insurance premiums due to that waiver of premium rider, which not only kept the policy alive, but it helped build cash value.

7. Life insurance can serve as a source of cash when you need it most

Depending on your coverage, you can borrow against your cash value or even surrender your coverage for cash if you really need it.2 In the example of Robert's circumstance, when his business came into some financial difficulties, he was able to access the cash value of the whole life insurance policy through a loan to keep the business running. When he died, the loan was paid out from the death benefit with the remainder going to his family-run business.

This flexibility also exists within universal and variable universal life insurance, which can be structured to allow access to tax-free income if needed later in retirement.3

For example, if Robert's business hadn't experienced difficulties, he could have structured his policy to provide tax-free income as a supplement to his business earnings should he need it. This way, he would have still had the protection from his policy while also personally benefiting from it.

Already have life insurance through work?

Your coverage through work may not be enough. A common rule of thumb is to start by calculating 10x your annual salary to determine coverage needs. Also, life insurance isn't set and forget. Your life insurance needs will change throughout your life – so it's important to recalculate your insurance needs every year or so. (Not sure what your coverage needs are now? Find out with our life insurance calculator.)

Learn more about your life insurance options

"Ask yourself: Who do I want to be present for? Who's important to me? When you consider these, life insurance can make a significant difference, and you can evaluate the connection between its price and its impact," says Yeiter

Of course, determining how much you need will inform the type you choose. Learn more about Thrivent's life insurance products.

Whether you currently have dependents, you plan to in the future, or you're passionate about leaving a legacy to the organizations and people you love, life insurance is incredibly useful for helping you reach your financial and life goals.

Prefer to talk to a financial advisor? Connect with someone near you.

Under current tax law [IRC Sec. 101(a)(1)], death proceeds are generally excludable from the beneficiary's gross income. However, death proceeds may be subject to state and federal estate and/or inheritance tax.

Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.

Modified Endowment Contracts (MEC) do not qualify for tax-free withdrawals.

Guarantees based on the financial strength and claims paying ability of the insurance company.

Investing involves risk, including the possible loss of principal. The product and summary prospectus contains information on investment objectives, risks, charges and expenses. Read carefully before investing.

Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent financial professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

Under current tax law, cash value accumulates on an income tax-deferred basis.

The primary purpose of life insurance is the death benefit protection.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance, may be solicited.