Buying Life Insurance vs. Saving: What You Need to Know

Buying Life Insurance vs. Saving: What You Need to Know

The ability to use financial tools daily is crucial, especially when you’re trying to decide between purchasing life insurance and growing your money savings or if you should choose between the two.

It’s not a one-size-fits-all approach to financial planning, so it’s not surprising to find this a regularly asked question.

If you need business or personal insurance, we can help. To learn more, please call (613) 454-1424 or contact us by email at info@ottawa-lifeinsurance.ca. 

What Is the Real Purpose Behind Life Insurance?

Life insurance is a form of protection from losing your life in its most straightforward form. If you want to proceed, there are some terms that you must be aware of:

Death Benefit: The amount of insurance you buy when purchasing an insurance policy for life. It will be paid to the beneficiary if you pass away.

Beneficiaries: The beneficiaries are those who will leave your money when you die, such as a spouse, parent, or children.

If you pass in your death and have life insurance coverage, your policy will give several death benefits to your beneficiaries named in the policy. The death benefit could cover your funeral expenses and even replace the income your family would lose in the event of a death.

The purpose of life insurance is to cover these expenses and help your loved ones financially in the event of your death.

Life Insurance vs. Savings Account

Life Insurance

• In exchange for a lump sum death benefit
• Guaranteed level death benefit available
• It is essential to pay the premiums to ensure the current policy.
• In most instances, it is tax-free to receive the benefit.
• The payment of policies typically takes between 30 and 60 working days.

Savings Account

• Limited to the sum you have saved in your account
• There are no-cost savings accounts available.
• It is possible to earn interest in the money you invest.
• You can keep savings in an estate until settled through probate.

What’s the Matter with Cash Value Life Insurance?

You may be wondering, what is cash value insurance? It’s simply another term to refer to whole-life insurance. If you pay to your entire life insurance policy, a proportion of the money goes to an account for cash values of the whole life insurance policy, which you can use to access.

It is simple to imagine whole life insurance in the same way as a savings-savings hybrid. However, whole life insurance policies are more costly each month. There are costs for withdrawing the cash value too quickly and then paying back the cash you drained from the procedure.

It’s not a good idea to invest in life insurance. If you’re looking to invest, talk to a financial professional who will evaluate your requirements and direct you in the proper direction.

If you’re still interested in the cash value component of whole life insurance but do not want the hefty monthly fee or premium, an alternative would be the return of premium insurance policy.

The Return of Premium Alternative

The most convenient option to open savings accounts linked to the life insurance policy is a return of premium on the life insurance policy.

Return on the amount (ROP) is a type of life insurance policy precisely like a standard term policy, but with one significant difference: If you die during the policy term, you will receive the lump sum of your premiums back. But, this means it’s far more expensive than a traditional time-based life insurance plan.

The concept is also known as forced savings. It can be an excellent option for entertainment for those who want the most from both worlds.

Conclusion

Savings accounts are fantastic instruments for anyone to use. Suppose you’ve saved enough funds to cover all your expenses for the year, congrats. It’s an impressive feat.

For us, with our way of life, our spending habits, and the way we save, it’s almost impossible for an average person to save enough to pay for their final expenses should they die. If you do it, there’s no way to guarantee your family members will have access to the funds immediately.

With a range of terms and levels of protection, life insurance can be an excellent and affordable option to cover memorial costs as well as ensure the pockets of your loved ones as well.

Savings accounts are excellent tools to possess. Suppose you’ve saved enough funds to cover the final costs, congrats. It is an extremely rare feat.