What is life insurance?

Life insurance provides protection against the loss of income from the death of a wage earner. It can also be part of a foundation for retirement. Periodically evaluating life insurance needs should be an important part of everyone's financial planning.

Why do people need life insurance?

Anyone who has a family, supports a household, pays a mortgage, or plans to send children to college can alleviate the financial burdens created by their death, if they have life insurance. The dreams they have for their loved ones will live on. Life insurance is one of the greatest gifts one can give their family.

How does life insurance work?

All life insurance policies work on the same basic premise: make payments (called premiums) to the insurance company, which guarantees to pay chosen beneficiaries a sum of money upon the death of the insured.

How much life insurance is needed?

Enough to provide for dependents' immediate cash needs and their ongoing living expenses. As a general rule, individuals will require 5 to 10 times their annual income, depending on their lifestyle, number of dependents, and other sources of income.

How much does life insurance cost?

The cost varies depending on the amount of coverage and the type of life insurance being purchased, as well as the current age, gender, health and lifestyle of the insured. Overall, life insurance is very affordable and there is no good reason to be without it.

What are the different types of life insurance?

Term insurance is straightforward and often the least expensive type of life insurance coverage. Its for a specified number of years, hence the name "term". If the insured dies during the term, their beneficiaries are paid the amount of the policy. If the insured is alive when the term ends, there is no payout. Some policies allow for conversion into permanent life insurance at the end of the term.

Whole Life insurance is permanent life insurance that combines a death benefit with a cash accumulation component. Part of the premium goes towards building a cash value. Premiums are fixed and the policy will remain in force for the entire lifetime of the insured, provided the premiums are paid. When the insured dies, their beneficiaries are paid the amount of the policy.

Is it possible to borrow money against a life insurance policy?

You can only borrow money on the cash value portion of a Whole Life policy. Loan rates can be below prevailing market rates. If you don't repay the loan, the death benefit amount will be less any loans taken.

What are the risks of waiting to purchase life insurance?

Individuals may delay purchasing life insurance because they feel that they can't afford it. But in that case, the reality is they can't afford to be without life insurance. A family that is having a difficult time managing on their current income will have a much harder time facing the future without the salary of a main contributor. The fact is, not having life insurance is a huge gamble with potentially devastating consequences. Life insurance helps protect a family's financial security.

TERM (Renting) vs. WHOLE LIFE (Owning)

You've decided you need life insurance, and you've made the decision to apply for coverage. But now you're unsure of what type of policy you should get. Term, or Whole Life? And why is whole life insurance more expensive than term anyway?

Those are good questions. Think of the difference between term and whole life as the difference between renting and owning.

Term Life Insurance

With term insurance you "rent" the insurance for a determined period of time, called a term. This can be 10, 15 or 20 years. If you were to die during the term period, your beneficiaries would receive a payment in the amount of the policy. If you are alive after the term, your life insurance coverage will expire. If you then want a new life policy, you will need to complete the application process again.

The life insurance company would evaluate your application just like any other new application. The cost of that next policy will be greater than the previous policy since you are now older and, if your health has changed, that too could add to the cost of the policy. Also, if there has been a significant change in your health, you may not be able to qualify for the new insurance at any price. So why choose a term life policy? Term life insurance is more affordable than whole life insurance since it provides coverage for a specific period of time, and that combination may be exactly what you are looking for. Affordable coverage, for a specific period of time.

Whole Life Insurance

Whole Life is more expensive. For the reasons stated above and because some policies have a savings component that can be looked at as you would a long term investment.