Purchasing life insurance is seen by many as a necessity, especially if you have a family to support. Some people see life insurance as an investment and others see it as protection. The reality is that life insurance is not an investment in the original definition of the term. In an investment, you place your money in an asset, venture, or financial tool with the anticipation of receiving a return on your money. Insurance, however, transfers part or all of your risk of loss to an insurance company. Life insurance may not be an investment in the general term, but if you die unexpectedly your family will be grateful you had this coverage.
The Purpose of Life Insurance
If you purchase life insurance, you are protecting yourself against unexpected death. There is no way to predict when you will pass away, but you can take the precautionary steps to prevent your death from being a financial responsibility to your family.
Life insurance is an essential part of any family financial plan. This is especially true if you have a family; it protects your significant other and your children. For example, it you are the main provider for your family and cover most of the larger household expenses such as a mortgage, car payments, etc., who will cover those expenses if you were to unexpectedly pass? If you’re not sure, then life insurance should be a critical conversation to have with your spouse. If you have the right life insurance coverage, you will be able to provide the right financial coverage to take care of these expenses and help with continued living expenses moving forward.
2 Types of Life Insurance
There are two main types of life insurance, which are known as permanent life insurance (also known as whole life insurance) and term life insurance.
Permanent Life Insurance (Whole Life Insurance): Whole life insurance offers a cash payout at the end of the policy. Whole life insurance is comparable to buying a home. Your monthly payment may be higher than monthly rent, but your building equity in a house you own. Your insurance company invests your premiums each month so that when you reach a retirement age it has a cash value. Different insurance companies offer a variety of different permanent life insurance plans. Some of the choices you may have are:
- Fixed premiums
- Variable premiums
- Flexibility to modify payments
- Take on higher investment risk for higher returns
- Cash-out value that has been built
Term Life Insurance: Term life insurance will provide protection for a specific amount of time. Term life insurance is like renting an apartment. As long as you pay your monthly payment, you will have access to the asset. This means that your beneficiaries will receive a payment if you die while the policy is in effect.
There are cases where you can purchase both term and permanent life insurance together. Be sure to talk with your financial advisor about your financial goals and what suitable life insurance options would be most suitable for you.
Life insurance, of any kind, is a necessity if you have a family and dependents. Having the proper life insurance will insure that your family is taken care of if you are to suddenly pass.
Feel free to contact us at Safe Harbor Insurance if you have any questions about life insurance policies or any other form of insurance. One of our agents would be happy to answer any questions that you may have!