Benjamin Franklin once morbidly noted, "The only things certain in life are death and taxes."
In the case of death, a life insurance plan will allow you to replace the financial value you typically provide to your family. As part of the plan, you pay a monthly, quarterly or annual premium, so your beneficiary or beneficiaries can receive a set amount of money when you pass away. In this way, life insurance provides a meaningful backup plan in the case of untimely death.
The Different Types of Life Insurance
Policies generally fall under two categories:
Term: This covers you for a specific number of years. Premiums for term plans are generally cheap when you're young, but they can increase as you grow older. The kicker is that the policy only pays out if you die during the period stated in the contract, and if you had followed through on your premium payments.
You may want to consider term life insurance if you have a limited budget or if you plan on investing your available money using other methods.
Permanent: A permanent plan will pay out regardless of when you die, as long as you kept paying your premium - which you can expect to be pretty expensive. Insurance companies charge higher rates for permanent plans because they invest part of your premium, allowing you to withdraw from and borrow against your plan along the way.
Consider permanent life insurance if you have more money to shell out for a higher premium and you want to use life insurance as an investment tool. For those who have difficulty consistently setting aside money, a permanent policy can offer you built-in savings.
Do I Need Life Insurance?
If you're young and healthy, the end of your life may be far from your mind. Generally speaking, you don't need to buy life insurance unless people depend on you for financial support. That financial support can take a few different forms. Here are some situations in which life insurance could prove useful:
- The mortgage you share with your spouse hasn't been paid off yet.
- Your children are attending college and have tuition bills to pay, or they've graduated with student loan debt.
- You were taking care of your grandchildren to save your children money on daycare expenses.
- You own a small business and your death would hurt the state of the company.
- Your family plans on holding a memorial service for you. Funerals are one of the most common expenses a life insurance policy can cover.
Although you may not think you need life insurance, consider carefully how your death may still affect those around you, and think about whether a policy could help out your loved ones.
Like death, life insurance is a fact of life, but it doesn't have to be as scary as the Grim Reaper. However old or young you are right now, you can confront the inevitable and take steps to provide for the people close to you. If you're interested in exploring your options, read through company reviews written by Credit Karma members.
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