Intro To Insurance: Life Insurance
AAA
  1. Intro To Insurance: Introduction
  2. Intro To Insurance: What Is Insurance?
  3. Intro To Insurance: Fundamentals Of Insurance
  4. Intro To Insurance: Property And Casualty Insurance
  5. Intro To Insurance: Health Insurance
  6. Intro To Insurance: Disability Insurance
  7. Intro To Insurance: Long-Term Care Insurance
  8. Intro To Insurance: Life Insurance
  9. Intro To Insurance: Types Of Life Insurance
  10. Intro To Insurance: Life Insurance Considerations
  11. Intro To Insurance: Other Insurance Policies
  12. Intro To Insurance: Conclusion

Intro To Insurance: Life Insurance

By Cathy Pareto

Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death. Today, life insurance is used for many reasons, including wealth preservation and estate tax planning. (For background reading, see The History Of Insurance In America.)

Life insurance provides you with the opportunity to protect yourself and your family from personal risk exposures like repayment of debts after death, providing for a surviving spouse and children, fulfilling other economic goals (such as putting your kids through college), leaving a charitable legacy, paying for funeral expenses, etc. Life insurance protection is also important if you are a business owner or a key person in someone else's business, where your death (or your partner's death) might wreak financial havoc.

Life insurance is a great financial planning tool, but should never be thought of as a savings vehicle. In general, there are often far better places to hold and grow your money as you get older.

Who Needs It?
Not everybody needs life insurance. If you are single and have no dependents, it may not be worth the expense. If, however, you have anyone who financially depends on you (even partially), life insurance may be appropriate for you. When considering life insurance, the questions to ask yourself are this:

  • Do I need life insurance?
  • How much do I need?
  • How long will I need it?
  • What type of policy makes sense for me? (this will be answered in our next section)
Your need for life insurance will depend on your personal circumstances, including your current income, your current expenses, your current savings and your family's goals. Rules of thumb might indicate that purchasing life insurance that covers six to 10 times your gross annual income is the right amount of coverage. But, that's merely a guide. Your family may need more or less than that. When deciding how much coverage is necessary, you really have to lay out the details of what you have versus what goals you'd like for your family once you are gone, keeping in mind that their security can often carry a higher price tag than you originally thought. (For more insight, see How Much Life Insurance Should You Carry? and Five Life Insurance Questions You Should Ask.)

Intro To Insurance: Types Of Life Insurance

  1. Intro To Insurance: Introduction
  2. Intro To Insurance: What Is Insurance?
  3. Intro To Insurance: Fundamentals Of Insurance
  4. Intro To Insurance: Property And Casualty Insurance
  5. Intro To Insurance: Health Insurance
  6. Intro To Insurance: Disability Insurance
  7. Intro To Insurance: Long-Term Care Insurance
  8. Intro To Insurance: Life Insurance
  9. Intro To Insurance: Types Of Life Insurance
  10. Intro To Insurance: Life Insurance Considerations
  11. Intro To Insurance: Other Insurance Policies
  12. Intro To Insurance: Conclusion
RELATED TERMS
  1. Comprehensive Glass Policy

    An insurance policy that covers glass that has been broken or ...
  2. Coastal Barrier Improvement (CBI) Act

    A federal law that makes federal disaster relief and federal ...
  3. Net Collections

    A term used in medical accounting to describe the amount of money ...
  4. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  5. Distribution Clause

    An insurance policy provision which determines how the coverage ...
  6. Insurance Consortium

    A group of businesses or organizations that join together to ...
RELATED FAQS
  1. How is risk priced in the market?

    In most cases, market actors have to be compensated for assuming risk, and the higher the degree of risk, the greater the ... Read Full Answer >>
  2. What happens if my insurance claim falls below the deductible level?

    Though the ins and outs of health insurance are often confusing, the concept of the insurance deductible is relatively straightforward. ... Read Full Answer >>
  3. How is the deductible I paid for my insurance claim treated for tax purposes?

    The deductible you pay on your health insurance policy may be tax-deductible if you meet certain conditions. However, whether ... Read Full Answer >>
  4. What are the main factors that impact share prices in the insurance sector?

    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>
  5. Why do insurance policies have deductibles?

    Insurance policies have deductibles for behavioral and financial reasons. Moral Hazards Deductibles mitigate the behavioral ... Read Full Answer >>
  6. Which emerging markets are seeing the strongest growth in the insurance sector?

    The emerging market economies seeing the strongest growth for the insurance sector are primarily the main emerging market ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!