Alternatives to life insurance
Here are some other ways to provide financially for your family and any other needs. Before choosing any approach make sure you know how much life insurance you need and, therefore, how much you need to provide through a different approach.
Investments
Investing in stocks, bonds, or other commodities via retirement accounts or by purchasing shares directly can all provide an inheritance.
Pros: You may be able to get a much higher return on your dollar, and grow your wealth significantly over time
Cons: Unlike a term life insurance policy, investing is risky; any investment can lose value/money. Proceeds will likely be subject to estate taxes and probate
Accidental death and dismemberment insurance
Another type of insurance policy, accidental death and dismemberment (AD&D) insurance pays out only in the event of an accident.
Pros: This policy may be less expensive than a traditional life insurance policy. It will also pay out if a serious accident causes loss of a limb or other major disability.
Cons: This type of policy doesn’t pay out in the event of death from natural causes or illness, which are covered by life insurance. It only covers accidents.
Annuities
These function like savings accounts that pay income to you during your life and into retirement.
Pros: Annuities provide retirement income that can be used for everything from rent to travel. They can be set up to pay your loved ones upon your death the same way life insurance would.
Cons: Annuities may charge expensive fees compared to other investments; if you pass away prematurely, the value of an annuity is less.
Mortgage Insurance
Another type of insurance plan that is designed soley to pay off your mortgage.
Pros: It can ensure that your mortgage loan will be paid off not only if you die, but also if you default on your payments or are not able to fulfill the loan's financial obligations.
Cons: Mortgage insurance is usually more expensive than traditional life insurance; policies are designed to have a decreasing benefit as time passes, and your premium will not decrease correspondingly.
Savings accounts
A traditional savings account is an easy way to put aside money for your death or another other financial need.
Pros: Savings accounts earn risk-free interest and are not subject to estate taxes.
Cons: Interest is lower than that on an investment and may have to go through probate upon your death. It will take longer to have enough coverage than what you’d get by buying life insurance.
Before you choose an alterative, weigh all of the options. Someone who needs life insurance may not be served by any other option in the same way.
