What Do I Need to Know about Life Insurance?

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There are many different types of life insurance policies available, but all of them can be categorized as "term" or "permanent". Term life insurance covers a specific time, such as five, ten, or 30 years. A permanent life insurance policy will last your lifetime, no matter how long you live.

Insurance becomes more expensive and difficult to buy as you age or develop health problems, so determining your needs early on is beneficial.

Term insurance costs less, so people just starting out in their careers often choose this option. It allows them to cover their spouse and any children at an affordable monthly rate. Others may buy a term life insurance policy to last until their mortgage or other significant debts are paid. You choose the amount you want your beneficiary to receive (also known as a death benefit) and as long as you pay the premiums, the policy will pay them the face value if you die at any time during the term. If you outlive the policy, whatever you've paid into it is forfeited by your beneficiaries.

Permanent life insurance offers more options:

Whole life remains the same throughout your life. This means the amount of the death benefit and the premium stay fixed as long as you keep the payments current.
Universal life is part term insurance and part investment. With universal life, the paid premiums that are not used to maintain the policy earn interest. You're allowed to determine what you pay and even change the death benefit. You must be sure your payments amount to more than the cost of the policy, or no interest can be earned.
Variable life allows you to invest your premiums in stocks, bonds, money market accounts, or a combination. If you manage your investment wisely, you can build a retirement nest egg or a fund to borrow from if needed. As with most investments, it can be risky because the market fluctuates, although the face value (death benefit) remains fixed.
Universal variable life insurance gives you the flexibility of universal life and the investment component of variable life. You choose where to invest your premiums and how much to put in.

Before choosing a life insurance policy, you should educate yourself about what is available. You may also want to seek out an insurance agent, but consider doing some research yourself first so you will have a good idea of what questions to ask. Understanding the terminology will ensure that you make more informed decisions.

The hardest question regarding life insurance is often how much to buy. It depends on your financial health and the needs of your survivors. Because lives continually change, it's important to review your policies and circumstances every year or so. You can access free calculators, as well as a wealth of information regarding life insurance, online.

If and when you decide to look for a life insurance agent, get recommendations from friends, family, and your lawyer or accountant. Also investigate the company before you purchase insurance. You want to make sure they have been stable and will still be around 30 years from now and that customers have been satisfied with it.