Life Insurance

Investing Your Tax Return in a Life Insurance Policy

woman working in coffee shop

Do you anticipate receiving a tax refund this filing season? According to the IRS, 128,064,000 Americans received a refund in 2021, with an average refund amount of $2,775. If you're among the group of tax filers getting money back from the IRS, you may be wondering how to make the most of your tax refund. You could reward yourself with a luxury item or a vacation. Or you could meet a pressing financial goal, such as paying off a credit card or purchasing life insurance.

3 reasons purchasing life insurance is one of the best ways to invest your tax return:

1. It's a smart financial move

Planning for your passing is a difficult subject matter to approach. But purchasing life insurance before getting married or starting a family is a smart financial decision. Plus, the younger you are, the lower the cost. If you pass away later, you'll be preparing now to potentially help your family's financial security in the future. 

2. You probably won't have to come out of pocket

Depending on the amount of your tax refund, you could cover your life insurance premiums for years to come. A $500,000 life insurance policy may cost less than a few dollars per day. That investment protects your loved ones when you can't be there. 

3. You'll have peace of mind.

When you purchase a life insurance policy, you'll feel better knowing you have helped protect your family if you unexpectedly pass away. Furthermore, having disagreements with your significant other regarding how the refund will be spent could be minimized by making the simple choice to get coverage.

Get your estimate in seconds
Answer a few questions to get an instant, personalized quote.

Other worthwhile investments to protect your loved ones

Beyond life insurance, there are other ways to use your tax refund to help protect your family's financial future: 

  • Pay down debt. Life insurance proceeds can help cover debt payments when you die. However, reducing the balances now alleviates the added stress of running out of funds to cover household expenses because the debt payments are excessive. 
  • Reduce your mortgage balance. The most expensive bill in most households is the mortgage payment. Your significant other may not want to sell the home and relocate if you pass away. Consider paying down the balance now so they won't have to make that difficult decision in the future. 
  • Beef up your nest egg. Your beneficiaries can have added financial security knowing your retirement benefits provide another source of income in the unlikely event of your passing. 
  • Start contributing to a college savings account. Get a college savings plan in addition to life insurance to fund your child's education and reap the potential tax benefits. 

How to purchase life insurance

Ethos is here to be your life insurance guide. When you're ready to use your tax refund to purchase a life insurance policy, here are three steps to simplify the process.

Step 1: Select the type of policy you want

Ethos offers two coverage options: 

  • Term life insurance: For individuals between 20 and 65, term policies cover up to $2 million. This form of coverage is highly recommended and comes with 10, 15, 20, or 30-year terms. If you outlive the policy, you'll need to renew it or purchase a new one.
  • Whole life insurance: These policies are reserved for applicants between 66 and 85 and offer coverage of up to $30,000. Whole life insurance covers you until you pass away, assuming you make timely premium payments. But you'll no longer have to pay for coverage once you reach 100 years of age. 

Step 2: Determine how much coverage you need

Once you decide between a term and a whole life policy, calculate how much coverage you'll need. You can leverage the DIME formula to lend a helping hand: 

  • Debt: Your total current debt and project funeral costs
  • Income: Your annual earnings for the number of years your family will need financial support from you 
  • Mortgage: Your outstanding mortgage balance
  • Education: The projected cost of higher education for your children 

Ethos also provides a handy calculator to do the work for you. 

Step 3: Explore Your Options and Pick a Plan

If you're ready to take the first step towards securing your family's financial future, get a free life insurance quote from Ethos today. There's no need to talk to an agent; no blood tests or medical exams are required. Simply answer a few online health questions. It's that easy to begin the process of getting life insurance online, and most get same-day coverage at an affordable price.

We take privacy seriously. By using our site you agree to our Terms of Use and acknowledge our Privacy Policy.