Life Insurance 101

• The Basics: Why do I need life insurance?

  Although your life insurance is put in your name, it actually insures the financial well-being of your family if you pass away, or that of a cause or charity that you value. Life insurance consists of a contract, called a policy, that states that you will pay a certain premium at regular intervals in exchange for the insurer providing a financial safety net for your family or designated organization in the event of your death.

• What kinds of life insurance policies are there?

  Generally speaking, you can purchase one of two types of life insurance, based on how long the policies last. Term life insurance is usually based on 10-year, 20-year or 30-year terms after which the policy is no longer active. It will insure your loved ones against debt in case you pass away early in your working career, a guaranteed which is often referred to as a death benefit. It is a good option for people who still have many years to go to pay off their mortgage or children who will not be financially independent for a long time. Term life insurance is usually set under simpler terms than permanent life insurance and has lower premium payments.

• Permanent life insurance

  Permanent life insurance is more complex and more difficult to understand. This type of insurance also includes a death benefit, but it often combines this guarantee with a cash savings plan that you can use for various expenses or leave for your family. Although the payments on a permanent life insurance plan are usually much higher than term life premiums, this type of insurance provides the benefit of tax savings for your family on a death benefit and cash value. Unlike term life insurance, in which premium rates can increase over time, permanent life insurance premiums stay the same over the duration of the policy.

• With each type of life insurance plan, there are subsets of policies that offer more flexibility depending on your financial needs. It is important to consult with an agent before purchasing a life insurance plan on your own, because the conditions of the policy can grow complex with variables such as your age, financial well-being and the amount of beneficiaries you would like to cover.