Definition:
Life insurance is a policy that will pay money to a named beneficiary upon your death. Life insurance is a way to help protect your loved ones if you were to die suddenly. It provides money to help pay from medical expenses, funeral costs and living expenses. When you purchase the policy you determine the amount that you are covered. There are different types of life insurance available.
- Term Life Insurance
Term life insurance is a policy that you purchase for a certain number of years. The rates are significantly lower than whole life insurance. You can purchase this at varying amounts for a set amount of time. Common lengths of time include 10, 20 and 30 year policies. If you choose term life, you should self-insure by the end of the policy. This means that you have enough in savings and your family is in a position in which it would not need life insurance to continue the same standard of living.
- Whole Life Insurance
Whole life insurance is a policy that follows you throughout your life. You pay a premium for this insurance from the day you purchase it for your entire life. Whole life insurance is often sold as an investment, because you can draw the money out of it, that you have put in. In reality you are paying much higher rates for whole life insurance, and you are getting a poor investment in return. If you went with term insurance instead, and simply invested the difference in mutual funds, you would be much better off. Universal and variable life insurance is another form of whole life insurance.
The amount of life insurance you get depends on your situation in life. If you are single and childless the amount offered by your employer should cover your burial expenses for your family. If you are married or have children, you should increase the amount that you have.
