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Who Needs Life Insurance?

Chances are you do

No one likes to think of their own death, and the thought of paying for life insurance doesn’t make the thought any more palatable. The truth is, life insurance is protection for those you leave behind—your family.

If you are young and in good health, life insurance premiums are generally less expensive than they will be later in life. For this reason, your insurance agent or financial planner may encourage you to invest in life insurance early.

There are two basic types of life insurance: term life insurance, where you choose the coverage amount and length of the policy, and whole or permanent life insurance, which combines an investment product with life insurance.

Term life insurance is good for short-term needs. Two good examples of this are to cover your children’s college education and to cover your mortgage. Parents could buy a policy that expires after their children graduate from college to ensure that the full education is paid for in the event that something happens to the parents. Or, the main breadwinner in a house could buy a term policy that matches the length of his or her home’s mortgage.

Under a whole life policy, of which there are many variations, you agree to pay regular premiums in exchange for a guarantee of a specified benefit payable to your spouse or other beneficiaries upon your death. Earnings on a whole life policy are set by the insurance company based on the overall return on its investments. Earnings above and beyond those required to cover the death benefit will go to the policy’s cash reserve, which you can borrow against, withdraw, use to pay premiums, or accumulate for long-term goals such as retirement. Premiums for whole life or permanent insurance are generally higher than a term policy.

If you do not currently have a life insurance policy, don’t wait. Even though life insurance premiums are not tax deductible, the long-term benefits are significant.