Life Insurance Basics

Posted by:  Financial Planner  on 1 Sep, 2011

Before you start down the road to finding the best life insurance options for you, you should first understand those options, so that you can be an active and educated participant in the life insurance shopping process.

First, though, what is life insurance? Well, life insurance is a financial planning tool that is used as a replacement of income when the policy holder dies. The benefit paid helps  dependents maintain their present quality of life after losing the assistance the income of the deceased provided. In addition to this primary purpose, the life insurance policy can also be used as a powerful savings vehicle, as it enjoys significant tax advantages over other traditional forms of savings tools (depending on the kind of policy you purchase).

There are two main types of insurance, two umbrella terms under which many different kinds of life insurance fit. These types are term life insurance and permanent life insurance. Their names explain much of what make them different – term life insurance will cover you and your family for a designated period of time, while permanent life insurance will provide protection for as long as you need, until the day you die.

You may be wondering at this point whether a term life insurance policy or whole life insurance policy would best suit your needs. However, it is difficult to give a generalized answer – simply put,  it depends on your very unique situation (though in many cases, a combination of term life insurance policy and whole life insurance policy works best.

There is much more to life insurance than this, but we will be going into more detail as the month progresses. Stay tuned!