The primary purpose of life insurance is to ensure that, in the unfortunate event of your passing, all of your financial obligations are taken care of. If you’re single these obligations could be limited to burial costs, student loans, a car payment, a mortgage, etc.ย If you have a family, these obligations may also include ensuring that your family has sufficient future income to maintain a reasonable quality of life (this is especially important if you are the sole breadwinner), that your kids can attend college, etc. These obligations are entirely subjective and will differ from individual to individual, family to family. A quality insurance agent or a financial planner can help you estimate these obligations.ย There are often aspects that you may not consider on your own that a professional can help identify.
Once this amount of coverage is decided, you can then look at your different options.ย The first big decision is in which type of coverage you want: term or cash value? Put simply, term insurance offers pure death protection. You rent coverage for a certain amount of time, a term.ย At the end of that term your coverage will expire.ย With a cash value policy, death protection is bundled with a cash value.ย In addition, the policy will remain in force until the policy holder dies or the policy lapses (due to cancellation by the policyholder, missed premium payments, etc.). Term insurance typically allows individuals and families to purchase larger amounts of death protection per dollar. While a cash value is more expensive, it does provide more permanent protection and forced savings, which may benefit individuals who have trouble saving.
A large argument is that a very small amount of term insurance policies pay out, 1-2% or so.ย While this is true, it’s also the reason why term insurance policies are so affordable.ย If term policies paid out more often, they’d be more expensive. Remember that nothing is “just that simple” and nothing is free, you pay for everything.ย There are advantages and disadvantages to each.
I encourage you to do research, consider various opinions, points of view and weigh the costs and benefits of each before making your choice.ย The importance of this decision cannot be overstated.
