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Life Insurance Information

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It might not be pleasant to think about now, but life insurance can be a smart investment that can protect your wife or husband, children, and other loved ones in the event of your death. Whether or not you need to take out a life insurance policy depends on the needs and circumstances of your family. Read on to learn about when life insurance is practical and when it may be unnecessary.

The Basics of Life Insurance

Life insurance is unique in that it does not protect the person who is insured; it is intended to protect your family and loved ones after you are gone. The coverage is designed to ensure that spouses, children, business interests, and other dependents are financially secure even if a major breadwinner or the owner of the company dies unexpectedly.

There are six main reasons you might decide to purchase life insurance:

  • To support family members or dependents who rely on your income
  • To pay for funeral expenses, burial costs, and estate taxes
  • To protect your business
  • As an inheritance to family or other heirs
  • To leave money to charity
  • As a source of investment or savings to draw on during your lifetime

If you are the major breadwinner of your family, the ideal life insurance policy should pay out enough money in the event of your death to ensure that your spouse and children will be financially supported for as long as necessary - including mortgage payments, medical expenses, and children's college tuition. On the other hand, if your purpose in arranging life insurance is simply to save your family the expense of your funeral and estate taxes, then your policy will be much smaller - enough to cover those expenses at estimated future prices.

Life insurance policies vary widely depending on age, health, gender, and any existing risk factors. The cost will depend primarily on the amount of coverage and the details of the policy, although life insurance policies are generally more expensive for men than for women, in part because life expectancy is generally longer for women.

Term Life Insurance vs. Whole Life Insurance

There are two basic types of life insurance: term life insurance, which pays if death occurs during the term of the policy, and whole life or permanent life insurance, which is actively invested in until death, whenever it occurs. Each choice has its benefits and disadvantages:

  • Term life insurance plans typically have no cash value to be drawn upon. If you outlive the term of the life insurance policy, you receive zero cash back and have no more insurance.
  • Whole life insurance policies typically offer a savings option, which allows money to be invested early and withdrawn later as needed.
  • Whole life insurance is very expensive at the start, allowing the insurance company to invest a chunk of money to cover the final payout.
  • Whole life insurance policies are typically more expensive than term life insurance.

A term life insurance plan might be suitable for a person in their 70s or 80s who would like to leave behind a legacy for their family or make a gift donation to a favorite charity, but who does not expect to outlive the term of the insurance plan. However, as term life insurance rates are based on various risk factors, a person in their 70s or 80s may have to pay a premium to secure this type of life insurance policy.

Permanent or whole life insurance may be preferable for anyone with a spouse or family who depends on their income. On the other hand, if you're only concerned about having life insurance while your children are growing up or you have an unpaid mortgage, a term life insurance plan for 10, 15, or 20 years might be right for you. Choosing the right plan depends on many lifestyle factors, as well as your needs and wishes in terms of your financial planning.

Discount Life Insurance

If you're seeking a bargain on life insurance, keep in mind that discount life insurance often turns out to be anything but cheap. Inexpensive plans may only pay out under certain circumstances, and pay nothing if death results from causes other than those stipulated in the policy.

Some life insurance companies offer bargain policies for children, which pay out in the event of a child's death. Other children's life insurance plans are touted as investments or as a smart way to establish a long-term plan that a child can continue to pay into as they grow into an adult. These plans are seldom worth the price, especially when the same money could be invested in a more conventional investment with a better return.

Life insurance is a worthwhile investment to protect your family in the event of your death, covering unpaid expenses and allowing them to maintain their current standard of living. It can also help to protect a business from bankruptcy. However, although life insurance advocates might claim otherwise, it is not usually the best way to invest for retirement or other financial needs during your lifetime.