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Life Insurance: What Is It and Do You Need It?

Choosing Life Insurance Can Be A Daunting Task, But Can Ultimately Provide Your Family In a More Comfortable Economic Standing.

Simply put, life insurance is financial protection for the people who depend on you in the event of your premature death. It is designed to replace your income which will be lost upon your untimely death. Life insurance benefits can be used for whatever expenses your family needs to cover. It can be your emergency fund to pay off funeral, medical and legal expenses. The benefits can also be used to pay for your dependents’ daily expenses.

Life insurance is not a get-rich scheme that will leave your family living in luxury when you die. It was not designed to be that way. It is however a modest savings plan where you pay the premiums and your loved beneficiaries receive the benefits after your death. There are life insurance products that are augmented with an actual savings component which, depending on the set up of your plan, can be withdrawn after a certain period of time. In these “combined” plans, the life insurance component remains to serve its main purpose of income protection for beneficiaries after your death.

Now that you have a better idea what life insurance is, you can now decide whether you need it. The best way to gauge if you do need life insurance is imagining what will happen if you suddenly die today. Particularly, what will become of your loved ones who are relying on your income? If you feel that they will be struggling financially after you are gone then the answer is pretty clear: you do need life insurance! If you feel that your family will not have the financial means to cover your funeral expenses and to continue on with their lives minus your income, it is time to consider the type of life insurance coverage you need.

If you are single and young, or if you and your partner both have jobs and do not have dependents, then perhaps you do not need too much life insurance. You can probably have an agent set you up with a savings fund that will cover your funeral costs. You can also invest that money that would have gone to life insurance premiums on something else. If you have property, you may want to purchase coverage that will later on cover estate taxes so that your heirs would not have to worry about it.

On the other hand if you are the family breadwinner and you have a pretty large family then you may just need a more substantial life insurance. If you are somewhat in this situation, your priorities should be as follows: food, shelter, and insurance. But just how much do you need? At this point you need to consider all your expenses including loan payments, mortgages, and other obligations. The best way to determine the amount of coverage you need is to use one of those online life insurance calculators where you can key in your information and the system will return an assessment of the amount of coverage you need and your premium costs.

The first thing you should know is that all types of life insurance products fall into either one of two main categories: the term and the permanent life insurance policy. Term policies are life insurance policies providing coverage at a fixed rate of payments for a limited time period (or what is known as the “relevant term”). After the relevant term expires, the coverage is no longer guaranteed and you may either forgo coverage altogether or purchase further coverage with a different set of payments and conditions. If you die within the relevant term, the beneficiaries you named in your policy will receive the death benefit. Term life insurance is among the most affordable types of policies.

Permanent life insurance is actually an umbrella term for plans that do not expire. It also combines death benefits with a savings component that the insured can borrow funds from. The most popular forms of permanent life are the whole life and the universal life.

You can avail of insurance policies from agents and brokers offering them in behalf of the insurance companies. Another way of buying life insurance is online, a method that is becoming increasingly popular these days.

Bear in mind that life insurance policies that come with an investment component will cost more than the basic term life policies. Oftentimes people who are interested in whole life insurance policies have a hard time finding one with affordable premiums, leading to abandon the idea of being insured altogether.