Are you expecting a tax refund in this filing season? According to a survey by the IRS, numerous individuals receive a tax refund with an average cost of $2,775. However, you might be concerned about maximizing your tax refund if you are a taxpayer, but have you considered if you should use your tax refund to buy life insurance?
Yes, you can use your tax refund to buy life insurance. This can help ensure your family’s financial stability in the future instead of spending it on things you don’t need, like more material belongings or a beach vacation. In this article, we will explain some important factors that can guarantee you that it is safe to use your tax refund to buy life insurance.
Why Should You Use Your Tax Refund to Buy Life Insurance?
If you pay too much on taxes, you are likely to get refunds on your overpaid taxes. It is important to consider the best ways to spend your cash jackpot. Spending your tax refunds on investments is one of the best ways to spend your money. Life insurance is a considerable investment plan that offers several benefits, keeping you and your beneficiaries financially stable while you are alive or dead. Dedicating your tax refunds to life insurance would help you pay enough monthly or yearly premiums for several years. You can spend your money on either term life insurance or whole life insurance policies.
Reasons Why You Should Use Your Tax Refund to Buy Life Insurance?
There are several reasons why you should use your tax refunds for life insurance. While life insurance is a good investment plan, here are some of the reasons you should buy life insurance with your cash refunds:
It is a wise financial step
Making plans against death is a difficult topic people often don’t talk about. Purchasing life insurance before getting married or while in marriage is a smart move to take. Because you are younger, you are likely to get lower premiums. Buying life insurance means you are making preparations against the financial stability of your beneficiaries when you are gone.
Peace of Mind
When life insurance is purchased, you will have peace of mind knowing your family is financially protected after you pass away. However, it is a wise idea to invest your tax refunds in simple life insurance coverage.
You May Not Have to Pay Out of Pocket
Based on your tax refund amount, you may be able to pay off your life insurance premiums for several years. A $500,000 life insurance policy may cost less each day; this investment financially protects your beneficiaries when you no longer can.
Benefits of Using Your Tax Refund to Purchase Life Insurance
Using your tax refund to buy a life insurance policy has several benefits. Using your tax refunds to pay your premiums helps you make payments without affecting your savings. Aside from this, the following are other benefits of using your tax refunds to buy life insurance:
Premiums are Paid with a Single Payment
With your tax refunds, you can pay your yearly premiums with just a single payment. Policygenius says the average cost for a 20-year term life insurance policy is $30, and each year it is $360. However, depending on your insurer, coverage type, age, and health, how much premium you are to pay is determined. Some insurance companies offer pay-in-full discounts that help you save money on premiums.
Lessen Your Monthly Cost
Buying life insurance with tax refunds increases your savings. It removes the burden of the monthly premiums you pay from your savings. It reduces your chances of making late payments or missing out on payments that can affect your policy. Buying life insurance with your tax refund creates flexibility in your budget.
Your tax refund will be used for something valuable.
It can be difficult to wisely use a cash jackpot. Using some of that cash to pay life insurance premiums is a wise idea and a good use of the money. Having a good life insurance policy aids peace of mind and ensures your beneficiaries will not be in financial struggles. There are two types of life insurance: term life and whole life insurance policies.
Term life insurance lasts for a certain time frame and offers death benefits only if the policyholder dies during the policy term. Whole life insurance lasts throughout the policyholder’s lifetime and has cash value benefits that can be withdrawn or borrowed while the policyholder is still alive. Death benefits are paid to the beneficiaries after the policyholder’s death.
Makes your retirement savings stronger
The cash value benefit of the whole life insurance policy accumulates and gains interest. These cash-value benefits can be withdrawn or borrowed during retirement. It can be used to cover several expenses and get over financial urgencies. While this is a good idea, it will reduce your life insurance death benefit.
Disadvantages of Using Your Tax Refund to Buy Life Insurance
Purchasing life insurance with your tax refund is a good idea due to the benefits it gives. But while this is an advantage, there are several disadvantages to buying life insurance with your tax refunds. These disadvantages include:
No guaranteed tax refunds
Receiving tax refunds a year doesn’t guarantee that it will be that way every year. If you pay more on taxes all through the year, you will be given refunds for the overpayment made. This, however, happens when your tax rate is too high.
Tax refunds may not be enough to pay your entire premium.
It is possible that your tax refunds will not be enough to pay off your life insurance premiums. In this case, you will have to fill the gap with your budget.
Your tax refund may be better spent somewhere else
Based on your financial abilities, your tax refunds may be used to cover up other needs; they can be used to pay debts, purchase a home, invest, create emergency savings, or set up a business.