I need Life Insurance! Ok, but what kind ?

What is Life Insurance ?
Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual’s or individuals’ death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.
As with most insurance policies, life insurance is a contract between the insurer and the policy owner (policyholder) whereby a benefit is paid to the designated Beneficiary (or Beneficiaries) if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon life (or lives) of the people named in the policy.
Insured events that may be covered include:

  • death
  • accidental death
  • Sickness

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events.

Below are the types most common types of Life insurance sold these days. The last one is my favorite and thats the one I have in place.

Whole Life Insurance
Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts.
What it does
It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax-deferred cash accumulation. It provides a fixed premium which can’t increase during your lifetime as long as you continue to pay the planned amount. It allows the insurance company to exclusively manage the cash value account in your policy. It provides you the option to receive dividends from your policy or apply them to reduce payments. It offers you the right to withdraw from the policy during your lifetime.
What it doesn’t do
It doesn’t offer the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn’t allow you the account flexibility to split your money among different accounts or to move your money between accounts. It doesn’t offer premium flexibility. It doesn’t offer face amount flexibility.

Variable Life Insurance
Variable life insurance provides permanent protection for you and is the type of life insurance with account flexibility for the more risk-oriented policy holder.
What it does
It pays a death benefit to the beneficiary you name and offers you low-risk, tax-free cash accumulation. It allows the death benefit to vary in relation to the fund returns of the cash value account. It allows you to borrow from the policy during your lifetime.
What it doesn’t do
It offers no guarantee to the amount of cash value during your lifetime. It doesn’t offer you premium flexibility. It doesn’t offer you face amount flexibility.

Universal Life Insurance
Universal life insurance provides permanent protection for your dependents and is more flexible than whole or variable life.
What it does
It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax deferred accumulation. It allows you to earn market rates of interest on your cash value account. It offers the right to borrow or withdraw from the policy during your lifetime. It allows you premium flexibility. It offers face amount flexibility.
What it doesn’t do
It doesn’t offer you the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn’t allow you the account flexibility to split your money among different accounts or to move your money between accounts.

*Term Life Insurance

Term life insurance is the simplest and least expensive type of policy. It’s pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you’ve designated, upon a specific event – – your death. The death benefit and the policy limit are the same – – a $200,000 policy pays a $200,000 death benefit. The policy protects your family by providing money they can invest to replace your salary, as well as to cover final expenses incurred by your death.

You can easily shop for good term life insurance quotes online.

There is no doubt in my mind that in this economic era, Term Life Insurance is the best option for me and my family. Just as they say that “You should not mix business with Pleasure”, I say, “You should not mix Insurance and Investments”. Thats what other financial gurus like Dave Ramsey and Suze Orman also say.

What do you say ?