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Life Insurance

What is Life Insurance?Life insurance is a contract which pays out a sum of money upon the death or other triggering event of a person to a named beneficiary or beneficiaries. It is used to protect ones family in the event of untimely passing and amounts in place are typically thought to want to replace that persons income, consideration is given to any debts that person had, college planning/savings for children, food/housing, all over the span of time that person would have lived.

What are the Main Types of Life Insurance?

The main types of life insurance are Term Life Insurance, Whole Life Insurance, and Universal Life Insurance. They all have various benefits and costs and individuals may vary on what they believe is appropriate for them. However, generally Term Life Insurance is the cheapest and provides the most coverage. Additionally, as with all types of life insurance, the sooner your policy is put in place the better the rates will be as the premiums you pay are typically age based (meaning the older you are, the more expensive the policy will be as premiums are based upon statistical averages as to the average age of untimely demise). There are individuals who use a combination of insurance to cover there needs for their family and maintain a savings element to it, and depending upon your circumstances this may fit. However, typically, for the average person, the coverage and affordability offered by term insurance make sense (having a $500,000 – $2,000,000 policy in place depending upon the needs of your family and the type/amount of income you are trying to replace over time). Life insurance is about protecting your family from the unexpected and knowing that should something happen suddenly and unexpectedly, your family will not be placed in an unduly harsh situation for lack of proper planning and foresight.

Term Life Insurance

Term Life Insurance offers you the greatest amount of coverage for your money and is considered the least expensive of the various types of life insurance. A term policy provides for a fixed term such as 10, 20, or 30 years, the company will agree to pay out the policy amount (upon your untimely demise) in exchange for your paying a premium timely (typically on a monthly, quarterly, or yearly basis). Term policies can be chosen in almost any amount, but typically amounts of coverage are $250,000, $500,000, $1 million, $2 million, etc. Term is highly favored by some due to the large amount of coverage that can be provided at the lowest cost, which is a huge advantage for the life of the contract.

Whole Life Insurance

Whole Life Insurance offers a set amount of coverage such as $100,000 to be paid out to a named beneficiary if the triggering event happens (i.e. your untimely passing) in exchange for a set premium. However, instead of the policy simply going away after the 10, 20, 0r 30 years there is a savings type element to these policies and the person paying the premium if alive and well at the end of the period would receive a check in the amount of the $100,000. This may sound good to some, but others believe that due to the raised amount of the premium you would pay for this type of policy (over a term policy) and the reduced amount of coverage for that increased premium (there is a large difference in the amount of coverage offered for the same premium between term and whole life insurance; term offering the greater coverage) you would be better off establishing a term life insurance policy to provide your family with more coverage at a lower expense, then take the extra money (which you would have spent for the raised premium in a whole life policy) and consider automatic investing in mutual funds or a similar investment or raise the amount you contribute to your 401(k) if not already maxing out each year.