Life insurance is often a necessity when you consider the fact that unexpected things happen – things like the sudden loss of life of a breadwinner. The primary value of any life insurance policy is that it provides financial protection for your family if you happen to pass on, and that is the main reason you must consider taking out a life insurance policy even though maintaining it might prove difficult along the way.
You must understand that you need a life insurance policy if:
- You have dependents; but if you have no dependents, you probably may not need a life insurance policy.
- You are the breadwinner of your family; but if you have a family but do not generate the income used by the family, then you may not need a life insurance policy.
- Your sudden death will cause hardship to some persons; but if not, you may not need life insurance policy unless you need it to cover for your funeral.
How much value of life policy do you need? The following factors may determine the amount of life insurance value you need:
- Your sources of other incomes
- The number of dependents you have
- The amount of debts you are possibly owing others
- The kind of lifestyle you live (risks you face) in terms of health, job, driving, residential area, etc.
For all Americans, there are largely two kinds of life insurance policy coverage to buy, even though there are variations of these two life insurance groupings: whole life insurance, and term life insurance.
Term Life Insurance
In very simple terms, term life insurance offers you death benefits when you die, but no cash value. This means your dependents are paid a lump or variable monthly sum at your death, but they receive no other benefits from investments made by the insurance company on your premiums. While this is debatable, some insurance experts advise that you can go for a term life insurance if you’re less than 40 years and suffer from no threatening illness.
Whole Life Insurance
Whole life is more expensive than term life, and the premiums typically remain unchanged over the duration of the policy; however, the insurance company makes investments on your cash value which builds a cash reserve for you – and you can draw from the cash value even in your lifetime.
Variable and Universal Life Insurance
These are variables of the first two types of life insurance. Variable life insurance helps you build up a cash reserve which the insurance company helps you invest in their stock and business investment programs.
This cash reserve performs just like investment stocks, which means the value of your cash reserve builds up quickly when the stock market is good, but you lose money when the market does poorly.
Universal Life, on the other hand, is a combination of term and whole life and features the characteristics of both. You have the liberty to adjust your death benefit, and even vary part of your accumulated earnings to cover part of your premium costs. In this case, the premium is much lower than whole life but higher than term life.
