Life Insurance

Financial protection in case of death

If you are the sole breadwinner in your family, how will they survive financially should you die unexpectedly? Death is never something to dwell on, but it is inevitable and sometimes unpredictable. Providing a financial succession plan for unforeseen circumstances will leave your family in a much better position should the worst happen. Knowing that you've taken care of all the details in advance will be a comforting feeling.

Life insurance is a contract between you, the insured and an insurance company that promises to pay your beneficiaries a specified amount upon your death. While chiefly used to provide a stream of income to your family, life insurance can also be used to buy out of a business interest, to make donations to charity or to paying estate taxes. It's definitely become a major financial planning tool.

There are two types of life insurance: term and cash value. Term provides a specified death benefit for a particular amount of time. There is no value to the policy except in the instance of your death. Cash value, on the other hand, provides both a death benefit and a savings component that you are able to borrow against should you need to. The two most common forms of cash value life insurance are whole life and universal life. Whole life premiums remain the same for your entire lifetime, hence the name. The cash value component provides an investment with a fixed rate of return. Any earnings from the savings component is tax deferred.

Some whole life policies pay dividends offered by mutual life insurance companies, whose policyholders own the business as opposed to regular ones owned by shareholders. Generally, these policies are more expensive than regular non-participating ones. The other cash value policy, universal life, allows greater flexibility with premiums, including altering the monthly payment without affecting coverage. A third form of cash value insurance is variable life - this gives the insured the choice of investment for the cash value portion of the policy.

Which is better? Generally, if you are younger than age 40, term insurance is less costly and is the best option. There are those who believe life insurance shouldn't have a savings component at all, that it is merely for protecting against the unexpected. You should speak to your financial advisor to determine what option is best for you.

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