The Value of Permanent Life Insurance Explained
It’s understandable to feel like you’re throwing money away on insurance like auto and homeowners when you might never file a claim. You pay month after month, year after year, and hope nothing bad happens. Data shows that for auto insurance, only about half of drivers ever make a claim in their entire lives. That means many people pay for decades without a direct “return” in the form of a payout.
But Here’s the Catch: The “What If” Scenarios:
The reason we have these types of insurance, and sometimes are even legally required to (like auto insurance), is to protect us from potentially massive financial losses. Imagine causing a major car accident with multiple injuries and expensive vehicle damage – including a Tesla! You could be on the hook for millions in medical bills and repairs. Even if you’ve paid for insurance for 80 years without an incident, the cost of one such accident could far exceed all those premiums combined. That’s when auto insurance becomes incredibly valuable. Hopefully, you have selected high enough liability coverage to handle it.
The Legal Landscape: We Live in a “Sue Happy” Society:
Beyond accidents, the risk of lawsuits in general is significant in the U.S. Over 100 million lawsuits are filed each year, and some statistics suggest the average American will be sued multiple times in their lifetime. This highlights the importance of liability coverage in both auto and homeowners insurance. A simple fender bender could lead to a lawsuit that drains your personal assets.
Homeowners Insurance: Another Necessary Expense:
Similarly, homeowners insurance can feel like an ongoing expense with no direct benefit. Many people pay for years without a major event like a fire. However, the potential financial devastation from a fire or a liability lawsuit on your property (someone getting injured on your sidewalk, for example) makes this insurance a critical safeguard, especially if you have a mortgage.
The Shift: Introducing Insurance with a Guaranteed Payout
So, while auto and homeowners insurance protect you from potential losses and liabilities, there’s a different kind of insurance that offers a guaranteed payout: permanent life insurance.
Think about it this way: unlike car accidents or house fires, one thing in life is certain – we will all eventually pass away. Permanent life insurance acknowledges this reality by providing a guaranteed death benefit.
How Permanent Life Insurance is Different:
With permanent life insurance, it’s not a question of if the insurance company will pay out, but when. As long as the policy is active (premiums are paid), your beneficiaries (usually your family) are guaranteed to receive a specific sum of money upon your death.
The Benefit for Your Loved Ones:
While you, the person paying the premiums, won’t see the majority of this money, it provides a crucial financial safety net for your family after you’re gone. This death benefit is also typically tax-free to them, making it even more valuable.
Potential Benefits During Your Lifetime:
Some permanent life insurance policies also offer “living benefits,” allowing you to access a portion of the policy’s value under specific circumstances while you’re still alive. However, the primary purpose and the guaranteed aspect of permanent life insurance is the payout to your loved ones after your death.
In essence, permanent life insurance operates on a different principle than other types of insurance. Instead of protecting against a possibility, it addresses a certainty, offering a guaranteed financial benefit for your family in the future.
It’s Important To Note:
I keep saying permanent because I’m not talking about Term insurance which serves it’s own purpose. In fact, only 5% of Term policies EVER pay out a death benefit. This is a low percentage because policyholders either outlive the term (10-30 years) or they cancel the policy. Permanent life insurance is a different product and comes in many forms commonly including but not limited to: Whole Life Insurance, Final Expense Insurance, Universal Life, Index Universal Life but it is never called term insurance.