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 A Guide to Life Insurance Basics

Life insurance brings peace of mind in a world filled with uncertainties. As gloomy as it may sound, life insurance provides a way to plan ahead and secure financial soundness for your family after you pass on. If you do not yet have life insurance and are considering purchasing a policy, outlined below are some solid reasons you need life insurance and how much you need.

Why You Need Life Insurance

There are several reasons to buy life insurance now, even if you're still young and healthy. One reason is to provide an income for your dependents. If your spouse and/or children are solely dependent upon your income, life insurance can provide a sure, steady income for them. Life insurance can also provide supplemental income if your survivors will be financially stricken. This also applies to other dependents such as parents, siblings, or adult children that are dependent upon your income.

Life insurance can also be used to pay any final expenses such as burial and funeral costs, estate administration fees, probate costs, medical expenses, homeowner or car loans, and other existing debts. Life insurance can help you provide an inheritance to your children or heirs if you don't have many assets to pass on to them. You can create a life insurance policy and list them as the beneficiaries.

Federal and state "death" taxes can also be covered by life insurance so these will not place an additional burden on your family. If you would like to leave a significant charitable donation to your church or some other organization, you can specify the charity as a beneficiary of your life insurance. And finally, life insurance can be used as a type of savings. With some policies, you can build up cash value and borrow against that amount or withdraw a certain amount by request. The interest credited is exempt from taxes if paid as a death claim or tax deferred otherwise.

How Much Life Insurance will You Need?

This really depends on your life's situation, whether or not you have a living spouse and dependent children, etc. If you have no dependents and have managed to save enough money for your final expenses, then you don't need any life insurance unless you plan to use it as a type of savings plan. If you have a spouse and children, you will want to purchase enough life insurance to care for their needs and to replace the household contributions you normally provide. For example, a husband that does handy-work around the house might consider providing extra money for house repairs since he won't be there to do the work himself.

Survivors might also need to relocate or replace a vehicle. Other needs to plan for include college tuition for children, health insurance (possibly full premiums without group plans), funeral and burial expenses, and estate taxes.

Types of Life Insurance

There are two main kinds of life insurance: whole life and term life. Whole life insurance is often called permanent insurance. This type of policy will pay a death benefit whenever you die, whether you die at 60 or 100 years old. Whole life is categorized in three types of policies: traditional, universal life, and variable universal life.

Term life insurance pays only if the policy holder dies within the term of the policy, which usually lasts anywhere from one year to thirty years. Level term and decreasing term are the two types of term life insurance. With level term policies, the death benefit remains the same for the entire policy term. With decreasing term insurance, the death benefit will decrease during the policy term.

No matter what type of life insurance policy you choose, it will help knowing your family will be financially secure for the future.

by Candice Pardue

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