Understanding Life Insurance

There are many factors to consider when purchasing life insurance. The three most important factors are how much coverage is needed, how long the coverage desired, and which product will fit your need. Every situation has many different factors, and there are different life insurance products that can help you cover your individual needs. Once a coverage amount (death benefit) is determined, you can then consider the options to cover the necessary time horizon.

There are two basic types of insurance; term and permanent. Term insurance has a set price for a guaranteed time length; usually 5, 10, 20, or 30 years. Term insurance has optional benefits such as a Return of Premium rider that gives the insured all of the premiums back if they are still alive at the end of the desired term (highly recommended benefit). Permanent insurance provides a set price for the entire lifetime of the insured. The two most common types of permanent insurance policies are whole life and universal life (Please refer to the policy descriptions on the main page of this site for a detailed explanation of these products). Permanent life insurance policies accumulate wealth with a cash value account along with a dividend account. (Life insurance policies vary from company to company, so be sure to review the guarantees of each policy before purchasing.)

It is very common to have a need for both term and permanent insurance. For example, John and Mary just purchased a home and took out a mortgage for $300,000 and are also interested in providing a death benefit for burial expenses in the event of a premature death. In this case, they would need term insurance for 30 years to cover the mortgage and a much smaller permanent policy to keep for their entire lifetime.

As you can imagine, life insurance needs get very complicated once you figure in all of a families debt obligations with varying time horizons, education expenses, lost earnings, and burial expenses. That is why it is critical to discuss your unique situation with a local life insurance professional from a top rated company. This will ensure that you are allocating your financial resources as efficiently as possibly to protect those most important to you and accumulate wealth along the way.