One of the main components of financial planning, is surely protecting your family from financial disasters, and Life insurance is surely be the main part of that planning process.
The amount of insurance you need for your purpose depend by different financial situation. For instance, if you have a family who depend on your income to survive, you need life insurance.
In this little guide about life insurance I will give you a little introduction to Life Insurance, as how much coverage do you need, as the type of life insurance as well.
Inside the content:
- An Introduction To Life Insurance
- Why purchase life insurance?
- How Much Coverage Do I Need?
- Type Of Life Insurance
An Introduction To Life Insurance
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First off, we have to know what is a life insurance policy. According to Wikipedia:
Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual’s or individuals’ death or other event, such as terminal illness or critical illness.
For instance, consider auto insurance. If your car was stolen, your insurance company should give you a compensation based on terms outlined in your insurance policy.
Also, purchasing a life insurance policy ensures that your loved ones will continue to living if you die unexpectedly.
If you have a spouse’s and your children’s you need to take into consideration both their annual expenses, as well as funeral costs. If you and spouse both work, you should each fill out a separate worksheet. You may also want to consider what sort of coverage.
In general, life insurance can be used to:
- Pay estate taxes and fees
- Provide an inheritance
- Fund your children’s college education
- Pay off a home mortgage
- Cover funeral expenses
- Settle medical bills and other debts
- Cover your family’s living expenses
While, the following parties are generally involved in a life insurance policy:
- The Insured – The person on whose life the policy is based.
- The Beneficiary – The person who receives the payment.
- The Owner – The person responsible for payment of premiums. It is typically the insured, but it could be the beneficiary.
- The Insurer – The insurance company that issues the policy promising payment. Traditionally, both spouses have life insurance policies in order to protect their family in case one of them dies.
Why Purchase Life Insurance?
The main reason people purchase a life insurance policy is to protect their family in case of death. In general, life insurance is for the welfare of your family and loved ones and against the risk of financial uncertainty.
If you have kids, spouse,credit card bills, mortgage, car payments, and for some reasons you die, your family have enough money to keep the car, the house, pay off credit card debt, and send your children to college?
In these cases, life insurance can give a great hand to your family and loved ones from potential financial disaster.
How Much Coverage Do I Need?
One of the most common question that people really do ask about life insurance is: “How much life insurance do I need?”.
The amount of life insurance that you need will depend on your particular goals or needs. In my experience, I reccomend you to purchase a policy that could to replace your annual salary, as you should also plan for a policy that are unique to your family.
Type Of Life Insurance
The first thing to remember before start purchase life policy is that there are several different types of life insurance products, which can become hard to choose the right one for your family and your financial needs.
Term life - Is the common form of life insurance. It is for a specific period of time or provide coverage for a fixed period of time. In general, that goes from 5 to 20 years. The premium for the term policy is valid for the duration of the term. Also, if it is a renewable policy, the premium will increase with each renewal.
Whole life policies – Is a type of life insurance that give you and your loved one a coverage until your death. Compared term life insurance, there are no fixed periods for whole life coverage. Whole life is sometimes referred to as “cash value” insurance because it builds cash value over your lifetime.
Universal life insurance - Is a type of permanent life insurance. Death premium can be changed according to owners needs. Money can be moved between the insurance and investment components of the policy, so, the policy owner has more flexibility over the policy.
