Why Buy Life Insurance
There are a variety of reasons why people may consider purchasing life insurance. Most people have life insurance in order to replace their income in event of death. This helps to protect their dependents from economic hardship such as the inability to meet mortgage payments on your family home. The younger your family, the more vulnerable it is to economic loss should you die. Other people buy life insurance to help meet cash needs when death occurs. Final expenses can include funeral costs, outstanding bills, uninsured medical expenses, estate taxes, executor, and legal fees. Businesses often require insurance to secure loans or partnership agreements. Finally, some people will use life insurance as an effective, taxed deferred way, to invest money.
The needs of every family are different. To determine how much life insurance you need, figure out what your assets are worth today and what your dependents would actually need to remain in the same lifestyle you are accustomed to.
A wide variety of life insurance plans are offered. There are two basic types, term and whole life. Most other plans are a variation or combination of these basic types.
Term Insurance
Term Insurance covers you for a specific period of time such as one, five, ten or more years. Most term polices are renewable, for one or more additional terms. The premium you pay will usually increase at the renewal of each term, to reflect your higher age and greater likelihood of death. Most term insurance polices do not provide cash values or other non-forfeiture options. Term insurance is usually considered the lowest cost route of buying large amounts of insurance.
Whole Life Insurance
Whole life insurance covers an individual for their entire life. The premium does not change. They are typically higher than term insurance . In effect you pay a higher premium than what is needed to meet the insurance risk in the early years and a lower amount than what is needed later on in the life of the policy. The excess that is collected n the early years accumulates as cash values, which are invested by the life insurance company.
Combinations
You can combine different kinds of insurance. For example, you can buy whole life insurance for lifetime coverage and add term insurance for a specific period of time when your needs are greater.
Universal Life Insurance
Universal Life, which is one of the more popular plans today, can cover you for the whole of your life with very flexible payment options. These flexible polices allow you to increase, decrease or stop your premiums altogether. Premiums are paid into a fund. From that fund you can choose different savings vehicles in which to invest the money in order to earn interest. Some of the interest will be non-taxable. The insurance continues for as long as there is enough money in the fund to pay the charges for the life insurance as they come due.
