Life Insurance Benefits: Why It Matters More Than You Think
Life insurance isn’t always top of mind, especially when you're young, healthy, or focused on everyday priorities. But big life changes, like getting married or having a child, often prompt people to think more seriously about financial protection.
The good news? The benefits of life insurance go far beyond just preparing for the worst. Life insurance can offer peace of mind, long-term value, and a financial safety net for your loved ones.
Whether you're buying a home, growing your family, or simply planning ahead, understanding the advantages of life insurance can help you feel more confident in your decisions. In this article, we’ll break down the key reasons life insurance is important and how it can support your goals.
What Is Life Insurance and How Does It Work?
Life insurance is a contract between you and an insurance company: in exchange for regular payments (called premiums), the insurer agrees to pay a lump sum (called a death benefit) to your chosen beneficiary when you pass away. This benefit can help your loved ones stay financially stable after your death.
There are two main types of life insurance: permanent insurance, which is designed to protect you for a lifetime; and term insurance, which is designed to protect for only a certain amount of time (usually between 10-30 years).
The Basics: Term vs Whole Life
Term life insurance is typically the most affordable (and easiest to understand) type of life insurance. Whole life insurance is a kind of permanent life insurance that offers financial protection throughout a lifetime. Ethos has partnered with some of the industry’s top carriers to offer both term and whole life coverage.
- Term life insurance offers coverage for a set period (usually 10, 15, 20, 25 or 30 years) and is typically a popular choice because most people can get adequate coverage for an affordable premium. If you pass away during the term, your beneficiaries receive the death benefit.
- Whole life insurance is a type of permanent life insurance that provides coverage for your entire life. It also includes a cash value component that grows over time and can be accessed while you're still living. In general, whole life is more expensive than term life because of the lifetime coverage and the ability to build cash value.
Choosing between term and whole life depends on your financial goals, budget, and the length of coverage you need.
Who Needs Life Insurance?
Life insurance is often associated with parents or breadwinners, but it can benefit many different people. You might consider getting coverage if:
- You have people who depend on you (like children or a spouse, or even nieces or nephews)
- You want to leave behind money for funeral costs
- You carry debt that could fall to loved ones
- You want to pass along a financial legacy
- You want to lock in coverage while you’re still young and healthy
Debunking Myths About Life Insurance
- It’s too expensive. In a recent LIMRA study, the #1 reason people give for not owning life insurance is that they think it’s too expensive. Yet 72% of people overestimate the true cost of a basic term life insurance policy.(1) In reality, a healthy 30-year-old woman could pay as little as $15 a month for a 20-year policy.(2)
- I’m young and healthy, I don’t need it yet. Many people think they don’t need life insurance when they’re young, but premiums are less expensive for young people, and get gradually more expensive as you age. Locking in a low premium early can save you money in the long run.
- My job provides enough life insurance. Employer-provided coverage is usually limited, and may not go with you if you change jobs.
8 Key Benefits of Life Insurance
Life insurance isn’t just about preparing for the worst, it’s about protecting the people and goals that matter most. If you’re wondering “why is life insurance important” – here are some advantages life insurance can offer:
Financial Protection for Loved Ones
First and foremost, life insurance provides financial protection for your loved ones. If you pass away unexpectedly, the death benefit can help your beneficiaries cover essential expenses.
Replaces Lost Income After Death
For families that rely on one person’s income, life insurance can serve as a financial lifeline. It helps ensure your loved ones can maintain their standard of living, continue paying for essentials, and avoid significant lifestyle disruptions like having to move to a new home.
Covers Funeral and Final Expenses
Even a modest life insurance policy can go a long way toward covering final expenses, which can be significant. This gives your family one less thing to worry about during a difficult time.
Helps Pay Off Debts (Mortgage, Loans)
Life insurance can prevent your loved ones from being saddled with outstanding debts, such as car loans, credit cards, or private student loans. It helps ensure that your financial obligations don’t become someone else’s burden. Many people design their life insurance in such a way so that the surviving spouse can pay off a remaining mortgage.
Access to Living Benefits
Some policies offer living benefits, also called accelerated death benefits. This means you can access a portion of the death benefit while you’re still alive if you’re diagnosed with a qualifying illness or condition. Many people use this money to help pay medical bills or cover costs of daily living if they are unable to work for an extended period of time because of their illness. However, it’s important to understand how these accelerated benefit riders may impact the overall death benefit.
Tax-Deferred Cash Value Growth
Cash value within permanent life insurance, generally, grows on a tax-deferred basis – meaning you won’t be taxed on any withdrawals unless they exceed the amount you paid into the policy itself.
Business Continuity Support
For small business owners, life insurance can be used in succession planning. It helps provide a financial cushion for partners or heirs to manage transitions or buy out ownership shares.
Peace of Mind and Mental Security
Knowing your loved ones would be financially secure in your absence offers emotional relief — and helps you move through life with confidence.
Advantages of Life Insurance at Different Life Stages
The benefits of life insurance shift depending on your age, responsibilities, and financial goals. Here’s how coverage can support you through life’s major milestones:
Young Adults & New Families
Even if you're early in your career or just starting a family, life insurance offers affordable protection. Buying a policy when you’re young typically means lower premiums, and it ensures your loved ones are protected if the unexpected happens. It’s also a good way to lock in insurability before health issues arise.
Mid-Life Professionals
During your peak earning years, life insurance can help cover a mortgage, support children through college, and safeguard your family’s lifestyle. Many mid-life adults use life insurance to ensure long-term financial stability and bridge gaps in their estate or retirement plans.
Seniors and Estate Planning
Later in life, life insurance can play a role in leaving a legacy, covering final expenses, or helping your heirs avoid costly estate taxes. Permanent policies may also be used to transfer wealth efficiently, especially when paired with thoughtful estate planning strategies.
Why Is Life Insurance Important in Financial Planning?
Even though life insurance is designed for protection, it can be a key piece of a comprehensive financial plan. From retirement strategy to legacy planning, here’s how life insurance can help support your broader goals:
Complements Retirement Plans
Some permanent life insurance policies accumulate cash value over time, which can be accessed during retirement to help supplement income or serve as a safety net during market downturns. Unlike traditional retirement accounts (like 401(k)s or IRAs), life insurance policies don’t come with strict income or annual contribution limits. This makes them an appealing option for high earners or those looking to diversify.
Just keep in mind that if a policy is classified as a Modified Endowment Contract (MEC), it may lose some of its tax advantages. (You should consult with a tax advisor if you have questions about how and when life insurance policies may become classified as MECs.) Term life can also serve as a safety net until you build enough retirement savings.
Protects Against Unforeseen Life Events
Life insurance ensures that if the unexpected happens, your family isn’t left struggling financially. It helps maintain stability, covering living expenses, debts, and other financial obligations at a time when your loved ones need it most.
Legacy Planning & Charitable Giving
Life insurance can play a powerful role in leaving a legacy — whether that’s providing for your children, paying estate taxes, or making a charitable donation. A life insurance policy allows you to pass along financial support to the people or causes you care about.
Choosing the Right Policy to Maximize Benefits
Finding the right life insurance policy starts with understanding what you need and what each type of coverage offers. Life insurance can offer peace of mind, and can also provide long-term financial benefits.
Understanding Your Coverage Needs
Think about your current financial obligations and what your loved ones would need if you weren’t around. That might include replacing your income, covering a mortgage, paying for childcare or college, or handling final expenses. As your life changes, your coverage needs may shift too.
Term vs Whole Life for Value
If you’re looking for affordable coverage for a set period (like while you’re raising kids or paying off a loan), term life insurance typically offers the best value. It’s cost-effective and straightforward. If you want coverage for your entire life with the potential to build cash value over time, whole life insurance might be a better fit, especially for those with long-term planning goals.
Working with a Trusted Provider Like Ethos
When choosing a policy, it helps to work with a provider that makes the process simple and transparent. Ethos offers term and whole life options with no medical exams for most applicants, a fully online application, and guidance if you’re unsure how much coverage you need. You can compare quotes and apply in minutes, all from your phone or laptop.
FAQs on Life Insurance Benefits
What are the tax benefits of life insurance?
Life insurance death benefits are typically paid out tax-free to your beneficiaries. If you have a permanent policy, generally the cash value also grows tax-deferred, meaning you don’t pay taxes on earnings unless you withdraw them. Just note that accessing your cash value or surrendering the policy could have tax consequences or may impact the death benefit.
Does life insurance cover natural and accidental death?
Yes, life insurance typically covers both natural and accidental causes of death — including illnesses and accidents. However, exclusions may apply for things like fraud or risky behavior, so it’s worth reading the fine print of your policy.
Can I access life insurance benefits while I'm still alive?
Some life insurance policies include “living benefits,” (called accelerated death benefit riders), which let you access your death benefit while you’re still alive if you're diagnosed with a qualifying illness or condition. In addition, you may be able to borrow from the cash value portion of a permanent policy while you're still living. Accessing funds through a living benefit rider will reduce death benefit.
How do life insurance benefits get paid out to beneficiaries?
After a claim is filed, the insurer reviews the paperwork and issues a lump sum or scheduled payments to the named beneficiaries. Most families receive the payout in a matter of weeks — especially if the policy is up-to-date and the death was straightforward. You’ll need to provide a copy of the death certificate along with any required forms from the insurance company.
Are employer-provided life insurance policies enough?
Group life insurance through work can be a nice perk, but it’s often limited to 1–2x your salary and can end if you change jobs. For most people, it’s not enough on its own, which is why many choose to supplement it with an individual policy.
What happens to life insurance if I stop paying premiums?
If you stop paying premiums, term life coverage typically ends after a short grace period. For permanent policies, any built-up cash value may cover missed payments temporarily, but the policy will lapse once that’s exhausted.
How do I know how much coverage I need?
Start by adding up your financial obligations — like mortgage, income replacement, debts, and education costs — and subtract any savings. You can also use a life insurance needs calculator, like this one.
Take the first step
Life insurance isn't just about preparing for the worst, it's about protecting the people you care about and strengthening your overall financial plan. From covering everyday expenses to leaving a meaningful legacy, the benefits can be far-reaching at every life stage.
If you're ready to explore your options, Ethos makes it easy. Most applicants don’t need a medical exam(answer few health questions) and the entire process happens online. See how simple it can be to get started.
