Life Insurance 101

Life insurance is defined as a contract between you and an insurance company that is a way to protect your family in case of death. Under a life insurance contract, the insurer agrees to pay a certain amount of funds that will help your family be able to live comfortably for a period of time after your death.

Life insurance should automatically be part of any financial planning for you and your family. It is one of the most important things that you can do for your family. Your concern should be providing for your spouse or family in the event of your untimely death.

You shouldn't just consider low premiums when considering what type of insurance you should get. A policy might look good because of the low cost but it may not cover your family for what they need over the long term. You need to consider many things:

Mortgage payments

Healthcare

Children's college expenses

Funeral expenses

Childcare expenses

Day-to-day living expenses especially if one person is a stay at home parent

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There are two types of life insurance plans that you can buy into.

Term life insurance - A plan that is set for a certain period of time, up to 30 years, that pays off a specified amount when you die

Whole life insurance - A permanent life insurance policy that gains equity over time. You can borrow against it and cash it out if needed later in life. Whole life insurance is more costly than term life insurance because of the build up in equity value.

Your needs for life insurance may change as your lifestyle changes. You may find that you need more as time goes on or less if your children have moved on and started lives of their own. As you age you should redefine what you need from life insurance and change it according to your circumstances, but as you age your policy premiums may go up.

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