Financial security is pretty high on the priority list for most people, especially if you have a family. According to a recent survey, 85% of people worry about their finances, with 30% reporting they feel stressed “constantly.”

So how do you achieve financial security? That depends on your situation and goals. While putting aside cash for unexpected emergencies is key, life insurance can provide an affordable safety net and is also an important part of long-term financial planning.

If you’re trying to decide whether to invest in life insurance or a savings account, the answer is likely both. Here’s what to consider.

Is life insurance like a savings account?

A life insurance policy is a contract between you and your insurance company. You choose a coverage amount and make regular premium payments to keep your policy with your insurance company. If you die while the policy is active, your family gets a lump sum payout, which they can use as they wish. While not a federally insured bank type of savings account, your life insurance may also include a savings component (but not always).

The major types of life insurance include:

• Term life. The most affordable and flexible type of coverage, term life covers you for a specific period of time (usually between 10 and 30 years). If you die while the policy is active, your family gets a cash payout from your term life insurance policy. Once you reach the end of the term, the policy expires. Term life doesn’t build up cash value the way some policies do, which is partly why it’s so affordable. Like home or car insurance, you don’t get those monthly payments back; you buy it just in case you need it.
• Permanent life. Permanent policies offer lifelong protection at a higher cost than term life. As long as your policy is active when you die, your family will receive a payout from the permanent life insurance policy. These policies also build cash value over time, which you can borrow from like a savings account. If you do borrow from your policy, though, you’ll need to replace that money to receive the full cash benefit from the policy at the end.

Benefits of life insurance vs. savings plan

In most cases, you really want both life insurance and savings to maximize your financial security.

It’s good to set aside cash for a rainy day, but you also need to plan for the unexpected, like a sudden death in the family and loss of income. Life insurance is designed to keep you covered in ways that your savings accounts may not be able to manage.

Think about all the financial responsibilities you have now: your spouse, dependent children or family members, mortgage, debt, and credit cards. It’s very difficult for most people to save enough to replace even a single year of their income, much less to pay off their mortgage if the worst happens.

Life insurance experts recommend a policy payout equal to seven to 10 times your annual income, far more than most people can save. By balancing savings with life insurance, you can keep your family covered now and into the future.

Pros of life insurance:

• Pay a little, get a lot – a 30-year old man can get a $250,000 policy for just $13 a month
• A payout that is tax-free in most cases
• Your family can receive the payout quickly after your death to cover immediate needs, in many cases

Pros of savings plans:

• Instant access to your money
• Can earn interest over time

Still have questions?

We’re here to help. Get in touch with a Fidelity Life agent or start your online quote today.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.