Life insurance isn't for everyone, but it might be a necessity at some point in your life. That is why it's important to know the basics of life insurance and understand which plan you may need at different stages of your life.
Young or old, your primary reason for buying life insurance should be to financially protect yourself, your family and any other dependents you may have. It is just a solid way to guarantee financial security in case you pass. Life insurance can cover the cost of finals' expenses, children's tuition, income replacement and more. You may also consider life insurance if you believe you will owe estate taxes after you pass. Everyone's needs are different, which is why understanding what life insurance policies cover is a good idea.
That being said, life insurance isn't necessarily for everyone. If you believe you and your spouse have generated enough wealth that you will not need it, have no dependents or have children who are self-sufficient, then life insurance isn't a necessity. This all requires careful calculation, confidence and communication among those concerned and the experts.
Term vs. Whole
There are two types of life insurance policies: term and whole life insurance. Term life insurance is the more affordable of the two but also offers less. Like the name sounds, whole life insurance or permanent insurance, covers you for your entire life. Both have their shares of pros and cons, but the most important thing is to understand what stage of life you are at and what you need.
Term Life Insurance
Term life insurance is affordable, but lasts somewhere between 10 to 30 years. People usually purchase term life insurance if they feel they will no longer have dependents after that period is up. For example, parents can purchase term life insurance if they feel their children will outgrow their dependency (become self-sufficient) or if either one of the spouses or family members will be financially stable without them.
One of the biggest benefits of term life insurance is that it is so affordable. With prices well below what whole life insurance policies offer, many are immediately drawn to this type of coverage. But the low monthly premium has a cost of its own. If you wish to extend coverage and feel that you may want to change policies, the transition can be difficult and most likely expensive as well.
Whole Life Insurance
While whole life insurance is a lot more expensive than term, the policy serves its own special benefits. First, since whole life insurance covers the person until the policyholder actually passes, the dependents are guaranteed financial security for more than just a "term." When you pay your monthly premiums, whole life insurance actually sets aside cash values that may be used during any point in your lifetime. People often buy whole life insurance if they feel that their family could be at financial risk after the policyholder passes. A critique of whole life insurance is that premiums are significantly more expensive than those of term life insurance and are often not balanced with the benefits.
Whole life insurance and term life insurance have a lot to them, but are great if you really need it. Consider how you are prepared financially, where you want to be in the future and communicate with your loved ones and your life insurance agent. An agent will be able to assist you when figuring out what policy is right for you and your family.