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4 Life Assurance Policy Benefits To Know About (#4 Will Shock You!)

When planning your life and financial future, it’s normal to think about what would happen if you died. If you are the breadwinner of the family, or you have unique financial needs, then planning for what will happen to your assets after your death is important. One way that people plan for this is to purchase a life assurance policy.

While you might think that these policies only cover the costs of your funeral and pay a little to your family, they can do so much more. Below are the answers to the most common questions around life assurance, and also the 4 benefits of a life assurance policy that you didn’t know about!

Enjoy!

Life Assurance Policy Benefits to Know AboutWhat is a life-assured policy?

A life assurance policy is also known as a “whole of life policy”. It’s a type of insurance that continues indefinitely once you sign up, and then it pays out a lump sum once you die (as long as you kept up with your payments).

This is not to be confused with a term life insurance policy. But, you can have both a life assurance policy and a term-life policy as well.

Related: Why Do I Have $1 Million in Life Insurance? 8 Reasons…

At what age should you stop life insurance?

Once you’ve signed up for life insurance, it’s best to stick with it. However, if you reach a certain age (ie. retirement age) and have saved up enough or paid for your funeral expenses and more, you may want to cancel to save money. That is your prerogative, but be sure to talk with a financial advisor about the best steps.

Related: When Do You Need Life Insurance? And How Much?

Who would not need life insurance?

Almost everyone can benefit from life insurance. But if you’re single, with little or no family, and plan on donating your body and organs, it may not be for you. However, if you have a family, dependents, or people who may depend on you and need your financial support, I highly recommend life insurance.

Related: Life Insurance – Do You Need It?

What is the difference between a life insurance policy and a life assurance policy?

The biggest difference between the two is term life insurance is for a specific term (ex. 10 years), but life assurance usually covers the policyholder for their whole life.

Related: Tips For Choosing Between Term and Whole Life Insurance

What are the disadvantages of life assurance?

There are a few disadvantages of life assurance, so let’s talk about them!

Higher Cost Than Term-Life

Whole life insurance can be costly. This is because part of the money you pay (aka your premium) goes into a cash-value account. This means you can “cash-out” or sometimes even take a loan on that money.

Death Benefits Are Lower

Whole life insurance offers a much lower death benefit than you get with a term policy. So if you need a certain payout to take care of loved ones after your passing, this may not be the right insurance for you.

You Can’t Invest The Funds On Your Terms

With whole life policies (ie. a life assurance policy), the insurance company invests your cash value into different investments. But you don’t get to decide what those are. So if you want to invest any of your funds, you should do that on your own and choose term insurance.

Related: 3 Questions to Ask When Buying Life Insurance

Couple walking through the parkWhich is better: life assurance or life insurance?

This all depends on your individual needs and how you want the money to be divided out after your passing. If you like the appeal of being able to cash out, life assurance is a better bet. If you want bigger death benefits, try term life insurance.

Related: Bestow Review: Term Life Insurance for Busy People

Are life assurance policies taxable?

In the US, no. However, any interest that your beneficiary receives could be taxable and should be reported. Feel free to talk to a tax professional about this and see if it would apply to your beneficiaries.

Should I get life assurance?

Should you get some form of life insurance? Most likely yes!

I recommend everyone get life insurance of some sort. Not only does this cover the cost of your passing, but can also mean your family and loved ones are taken care of, even if you aren’t there anymore.

Related: Life Insurance is Cheaper and More Important Than You Think

Family picture showing a need for a life assurance policyWhat are the benefits of life assurance?

Now, let’s talk about the four major benefits of life assurance, and why you may need it!

1) Provides More Benefits Than a Savings Account

When you set your money aside in a savings account, that’s all the money there is. You can only save so much money in your lifetime. This is why many people prefer getting a life insurance policy too.

When you pass on, the policy holds a higher value than the premiums you put in. It’s very rare for the average person to save enough to cover what a life insurance policy can pay for.

A life insurance savings account can be a better option than simply using a regular savings account. And, after death, life insurance funds are typically available much sooner than those in a savings account. The cash in an account sits there until the entire estate is settled. This can sometimes take a year or more. Life insurance helps you take care of big needs immediately.

Related: Creating Family Wealth: Using Life Insurance for Asset Protection

2) Loans on Life Insurance Policies

Some insurance policies let you borrow up to a certain amount against the value of the policy. This is beneficial because there are typically low, or no interest rates. And the repayment options are very flexible. For people who have major life events, borrowing against their life insurance policy can be helpful.

The types of life insurance policies most likely to offer loans are whole life insurance policies and permanent life policies. But it’s important to note that term life insurance doesn’t offer this benefit. When you shop around for life insurance, you can find policies that offer this as a convenient option.

life assurance for debt repayment3) Debt Repayment Options

Leaving your family saddled with debt when you pass on can leave some people feeling more than overwhelmed. And some debts can feel impossible to pay off. You don’t want your hard-earned money to go toward those debts after your death.

While some debts like credit cards may have a forgiveness option upon your death, others do not. This means that when your estate has settled any assets, including cash and life insurance payouts, they may need to go to the lenders before your family gets a single penny.

Now there are some life insurance policies that offer debt repayment options. This means that instead of eating into your life insurance policy money, debts will get paid off by your life insurance company instead.

There are limitations to this, of course, and not every policy includes them. But this type of benefit helps people who want to leave as much as possible to their families.

Related: Why Is It Important to Pay Off Debt?

4) Cash Value Payouts

Cash-value life insurance offers a unique benefit. Each time you pay your premiums, the money is distributed to three different places.

The first goes into the cash value of the policy. The second is for the actual amount it costs to insure you. The last is for fees and changes to the policy. This means that each time you put money in, some of it can be pulled back out.

The ways that you can get back this cash is if you surrender the policy, get a loan, or simply withdraw the amount of the cash value. Some people use these policies to help pay for college for their kids, or they may use them to invest in other ways.

Related: Simple Investing: Save Time, Earn More! #BOOM!

Final Thoughts on Life Insurance Benefits

There are many different life insurance options. Depending on whether you simply want to get burial insurance to cover the cost of your death, or you want a policy that will take care of your family after you’re gone, there are plenty of choices. This can get confusing.

Before you commit to anyone’s policy, discuss your needs with a qualified insurance agent. They will be able to answer your questions about whole life, term life, and even permanent life insurance policies. But, if you like the benefits of a life assurance policy, it might be worth checking out!  

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AUTHOR Kimberly Studdard

Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.

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