Family

Insurance protects you when something goes wrong in life. Thinking about the possible problems you may face in the future may be a bit uncomfortable, but it can really help you and your loved ones avoid a financial crisis.

This section takes a brief look at a few different options for life insurance.  It would be difficult to put everything you need to know on just one page so view this as an introductory lesson.

There is no doubt that life insurance is important.  However, if you are young and healthy and, most importantly, don't have any dependents then this might not be the best way to spend your money. Life insurance is necessary when you have a family or a business that depend on you as a source of income.  Your needs in life change as you get older and this is true when thinking about life insurance.  Now, at a young age, you might not need it, but once you have children it will be very important to have.

Life insurance is primarily classified in one of two ways: term or whole life.  Term life insurance is rather straightforward.  If you die within the term period, usually 30 years, then the policy will pay. Term policies can be further broken down into level and decreasing term.  The level term policy will guarantee that the payout upon death remains the same for the term of the policy.  The decreasing policy has the payout drop, usually each year, over the term of the policy.

Whole life insurance differs from term insurance in that whole life will pay whenever you die, regardless of age. Just as term insurance has subsections, so too does whole life.  Traditional whole life insurance is your basic whole life policy. It will pay the benefit to the beneficiaries upon the policy holders death.

Universal life insurance is a bit more flexible than traditional.  With a universal policy you get a low cost similar to what is found with a term policy, but also a savings feature which builds up cash value. A benefit of the universal policy is that the holder can update the policy as their life circumstances change. Another appealing benefit of the universal policy is that interest earned from the savings component can be used to pay the premiums.  This means less cash out of the holder's pocket to pay premiums.

The final version of whole life insurance we will address is the variable universal life policy, sometimes seen abbreviated VUL.  The variable universal life policy offers a death benefit as well as an investment option.  The investment portion of the VUL policy may produce higher return than a universal policy, since the VUL investments may allow for exposure to stocks and bonds.  Similar to universal life, the premium can be adjusted over the life of the policy as the holder's circumstances change.  These types of policies also contain a cash value component that grows on a tax deferred basis. The holder can borrow against this cash value or withdraw from it if necessary.  However, if the cash value goes below a predetermined level, additional premium payments may be required.

Life insurance is no doubt an important part of your personal financial plan, especially as you get older and have children. Examining your options carefully is vital before selecting a policy.  As with any investment you make, be sure to understand what it is you are buying before making a commitment.  In the world of insurance, this may require you to sit with a financial adviser to discuss your needs and what policy makes the best sense for you.