A Guide to the Different Types of Life Insurance

What is life insurance?

Life insurance is a policy that can be purchased to provide a named beneficiary with a sum of money upon the purchaser’s death. The amount of money received is previously determined by whatever policy was purchased. Life insurance is important to ensure the financial security of your loved ones after the time of your death.


Different types of life insurance – what’s right for you?

The two main types are term and whole life. Both can be helpful, depending on your personal circumstances.



This type of insurance is purchased to last a specified amount of years, usually around 10-30. By the end of the term, your policy is over and, if you are still alive, you don’t get any of the money. This insurance is generally much cheaper and less complicated than other kinds. This makes it ideal for individuals of lower income or that only need coverage for a specific amount of time. For example, if you have a family, you’ll want them to be covered until they can support themselves.


Whole Life or Permanent Insurance

This type of insurance lasts your entire life. It is much more expensive than term insurance, mainly because it also includes something called “cash-value.” Part of the premium you pay gets invested and accumulates money over time. This money can be borrowed, withdrawn, or put towards your premium payments. This could be very helpful, but has downsides as well. For example, depending on how much money you borrow or withdraw and whether or not you pay it back, your death benefit could decrease in value. Many people use this as a way to invest, but life insurance was not designed for this purpose. You will probably be better off investing somewhere else if that is your main goal. Since it is so costly, this type of insurance is best for people that are wealthy. Those that can’t afford it often end up not being able to receive the appropriate amount of coverage. It can also be good for those that have a large estate tax to pay off. It is unlikely that the average person would need coverage for life and, therefore, the average person would probably be better off with term life insurance.


How much and how long?

To get a general idea how much life insurance you need to buy and for how long, decide how many years you think your dependents would need your financial support. You can take your current income and multiply it by this number of years to get an estimation. You also should take into account future planned expenses, such as college tuition. Your absence may cause more financial problems than you even realize as there may be other duties you perform that would need to be replaced. For example, if you were the one that did all the handy work around the house or worked on the cars.


Purchasing life insurance may seem daunting and perhaps a bit bleak, but you will feel much better knowing that your family will be taken care of if something were to happen to you.

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