Life Insurance


Even if you don't need to buy life insurance yet, you still need to know about it.

Life insurance isn't something people like to talk about. After all, thinking about dying and what happens to family or loved ones after you're gone isn't the easiest thing to do. But if anyone depends on you for financial security, life insurance is something you can't afford to ignore. And even if you're not at that stage in life yet, it's still smart to know what's at stake so you can make the right decision when the time does come.

INSURANCE BASICS

When you purchase a life insurance policy, you're agreeing to pay a regular premium, or fee, often on a monthly or quarterly basis. In return, the insurance company agrees to pay a death benefit or a certain value to your beneficiaries if you die. Most people designate their spouses, partners, or children as beneficiaries, but you can choose anyone you want, such as a parent or business partner.

DO YOU NEED IT?

The first question to ask yourself about life insurance is whether you need it. If you're married or if you have children, then the answer is most likely yes. It's the only sure way to provide income for your family's financial needs, from funeral expenses to mortgages and education costs.

If you don't have a spouse or kids, and there's no one else that depends on you for financial support, then you probably don't need insurance. If you die and leave debts behind, your creditors can try to collect from your estate. But they can't collect from your parents or other people unless those people cosigned the loan agreement.

FOR A TIME OR FOR LIFE

There are two main types of life insurance: term insurance and whole life insurance. As the name suggests, a term policy covers you for a set period of time, usually 5, 10, 15, or 20 years. After the term expires, you must renew your policy.

Since term insurance is much cheaper than whole life, many financial experts recommend it for young people. The limited time frame can be good, too, since it gives you the chance to switch over to a whole life policy in the future.

Other advisers suggest you might want to purchase a whole life policy right away. In addition to providing coverage for life, these policies set aside a portion of each premium payment to accumulate as tax-free savings. You can even use these tax-free dollars to pay your premiums. To help sort out your questions, it may be smart to talk to a fee-only insurance consultant who can explain the pros and cons of each type of insurance.