Life Insurance

7 June, 2015

Life insurance can have several valuable benefits.

The obvious main benefit is to provide financial security for your family or loved ones after you are deceased.  Life insurance is not for you, it is for other people you care about.

Life insurance comes in two types.  Term life insurance and whole life insurance. 

Term life insurance is just what the name implies – it is for a set term or period of time.  Rates vary depending on several factors such as health of the insured, age, etc.  However, term life insurance is cheaper than whole life insurance because you are not accumulating any value in the policy itself.  If you stop paying the premium and walk away, the term life insurance policy is over and what you have paid is the insurance company’s profit for insuring you.

Term life insurance can be particularly beneficial for younger families because it is generally a cheaper way to have life insurance.  At this stage the family may not have much else in the way of security such as a home that is paid off or a health 401K.  The school of thought is that later in life, you have other instruments that decrease the need for life insurance somewhat.  These instruments include savings accounts, retirement accounts, land, a house, etc. 

It is typical that a young person can find term life insurance for several hundred thousand dollars for less than $20 per month.  Even if you are living paycheck to paycheck, you should be able to budget this amount per month.  This writer thinks it is extremely important to have some type of life insurance especially if you have a family with children.

Whole life insurance is different than term life in that the policy also accumulates cash value.  Whole life insurance can be used as a savings vehicle in addition to providing life insurance benefits. The policy is viewed as an asset, and the holder of the policy can borrow against the policy or even withdrawal money out of the policy.  The downside is that the monthly or yearly premiums are usually higher.  Also, there is usually a fee if you cash in the policy.

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