Life insurance

The reason a life insurance exists is to offer protection your family against financial disaster. In other words, you need this insurance if you die and your loved ones depend on your finances for survival. For example, if you have kids or other dependents who are financially depending on you, you may want to buy this insurance. If you have a spouse or another family member who can handle living expenses and finances without your assistance, then you don’t need this insurance. It is as simple as that. However, there are other circumstances where this insurance may be needed, but the above reason gives you a general idea.

Type of Insurance

There are basically two types of life insurance – term life insurance and cash value policy. With term life policy, you are insured for a limited term and when the term runs out, you can renew the policy or discontinue it. If you die during the term, the insurance company offers financial protection by paying death benefit to your beneficiary. This type of insurance is cheap compared to the other type – cash value policy. For example, a healthy young adult with a death benefit of $250,000 will pay anywhere from $15 to $20 per month or about $200 per year.

The Difference

Term life policy offers the most coverage for people of any age so this may be all you need. Cash value policy is expensive and pays little compared to what you pay in premium. So, don’t be surprised if an insurance agent urges you to buy cash value policy instead of term life because this is where they make most of their money. With a cash value policy, most of your premium goes toward paying fees and commissions to the agents. Whatever is left will be deposited into a savings account known as cash value. The money in this account will grow tax-deferred and is tax-free to your beneficiary but only when it is held until death of the insured.

How and Where to Buy

You can buy insurance policies of your choice from insurance agents, but your best bet is to buy directly from the insurance company. Many large employers also offer insurance protection to their employees. Look for term life policy unless your finances or circumstance is different than most people. And steer clear of sellers who are aggressive and compelling when selling their policies. They may come up with a pitch that you may need expensive insurance even when you are young and healthy. The reality is that the chances of developing a health problem at an young age is very rare. And if you have limited funds now, you can use it for other tax saving instruments such as 401Ks and IRAs. Similarly, agents who pressurize you into buying a policy for your child or children are deceiving as well. Buying coverage for children is a waste of money, despite what the agents claim. Again, note that buying insurance that promises a certain rate of return may not guarantee that rate in the long run