Why you need life insurance

Life insurance is something most people think about sooner or later. While no one likes to think of or plan for their own death, or what their family would do in the event of their death, it is important to be prepared so your loved ones don't have to suffer financially in the event of death.

What is life insurance?
While there are different types of life insurance, basically, life insurance is financial protection for those you leave behind in the event of your death. Most often, those who take out life insurance policies are typically the breadwinners in the family or make the majority of the money. If they were to die without life insurance, then the family would struggle financially.

Life insurance consists of a sum of money that is guaranteed to the insured's named beneficiaries in the event of his or her death. The insured pays a monthly premium each month to secure the funds. How much the premium is depends on the amount they take out (a one million dollar policy would be more expensive than a $250,000 policy, for example) as well as the age and health of the individual. For example, a 35-year-old non smoking male would pay less per month for life insurance than a 55-year-old smoker, who is at a greater risk for dying.

Why you need life insurance
There are a number of reasons people take life insurance policies out. The following are a few reasons why you need life insurance:

Financial security for spouse and dependants
Most people will agree that the main reason they take out life insurance policies is to leave behind their spouses and children with money in the event of their death. This helps to replace the income they would be earning were they still alive and helps the spouse to get on his or her feet while looking for a job or finishing school. It is also helpful if the family loses medical benefits after their death.

Life insurance isn't just for children and spouses, however. People also name their parents, siblings, or other family members who may rely on them financially as beneficiaries on their policies.

You can also use life insurance policies as a way to create an inheritance for your children, nieces, nephews, or other family members by naming them as beneficiaries.

Make charitable contributions
Some people use the majority of their life insurance policies to make charitable contributions to causes or charities they are associated with or feel strongly about, particularly if their family members are already taken care of.
Planning for their own death is not something people like to think about. However, there are many reasons why you need a life insurance policy. It is best to be prepared in the event of your death by ensuring the financial security of the ones you leave behind.

Pay for funeral arrangements
A recent study concluded that the average funeral in the United States costs around $6500-8000. A life insurance policy, even a small one, can help to cover funeral and burial costs and any other costs associated with your death.

Pay taxes after your death
When a person dies, there are often "death" taxes associated with a person's estate. Using a life insurance policy to pay for federal and state death taxes as well as estate and probate taxes can also ease financial burdens on your loved ones.

Create savings while you are alive
Life insurance is not only for the ones left behind due to a death. There are types of life insurance that allow you to borrow or take out a portion of your life insurance policy after a period of time for a cash value, if your death benefit has not been paid out. This cash value is a portion of the policy you pay each month and accumulates into a sort of savings. It also grows tax free. Some people take out their cash values to enjoy life while alive, pay bills, or get an education.

Peace of mind
If you have life insurance, you can have the peace of mind of knowing your family members will be taken care of financially after you pass on. Money from life insurance could pay medical bills, college tuition, mortgage, and day to day expenses that your income provided.

When and how to buy life insurance
Life insurance is considered a necessity, so it is inevitable that at one point or another, you will probably end up buying a policy. Insurance experts agree that the very best time to get a life insurance policy is when you are young. Policies for older people can be difficult if not impossible to get, depending on your age and health status, and the premiums will end up being very expensive. When you buy a policy at a young age and renew it each year, you can expect to pay very little-around a few hundred dollars per year.

Typically, your premium will be more than what it would actually cost to protect you if you buy the policy in your earlier years. Then, as you get older and more prone to illness, the premiums are less than the actual cost of the policy. This reversal in payments results in level premiums-higher payments in the beginning, coupled with interest earned, balances the lower costs you will pay as you get older.

You will also end up paying considerably less if you are in good health and are a non-smoker. Even if you are young, if you smoke, chances are good that you will end up paying a much higher premium than you would if you were a nonsmoker.

Types of life insurance
If you are shopping around for life insurance, it is important to keep in mind that there are different kinds of insurance, depending on your individual wants and needs.

There are two main types of life insurance-term insurance and permanent insurance.

Term Insurance
Term insurance is insurance that you purchase for a specific period of time, usually between 5 and 30 years. During this time, you pay the premium and if you die under the term of your insurance, your beneficiary(ies) get the death benefits.

This is typically the most affordable type of insurance, especially in the early years when the premiums are at their lowest. However, term life insurance does not build up a cash value as permanent life insurance does.

If your term insurance expires and no death benefits have been paid to your beneficiary, then you can opt to renew it for another term, anywhere between 5 and 30 years.

Permanent life insurance
The other type of insurance is referred to as Permanent life insurance. Also called whole life insurance, this type of insurance is designed to be kept over a long period of time, or your whole life (hence the name) as long as you continue to pay your monthly premiums.

Whole life and term life insurance have a number of differences, the main being that term simply insures the chance that you will die during the term of your insurance, while whole life insures that you will die at some point during the duration of the policy, since it's for life.

In addition, whole life insurance also has what is called cash value, making it an attractive option for many people. With every premium you pay, the interest is deducted and put into a cash reserve, which is tax-deferred. You can cash this in once it has grown to create some savings or money to use while you are alive.

Finding a life insurance company
Now that you know how important life insurance is, you can go about getting quotes and finding the best policy that meets your needs. Make sure you do your research and understand the different types of life insurance so you have an idea of what you need.

The best thing to do when looking for a life insurance policy is to shop around. This will help you to compare different rates as well as companies and insurance agents. Insurance companies will be vying for your business, so it is possible to be able to save on your premiums just by shopping around. The internet is a great place for this, as there are many websites that will compare rates from different companies for you, taking the work out of calling around to different companies.

While planning for an unexpected death is not something most people look forward to doing, there are many reasons why life insurance makes a sound financial decision. Life insurance is a necessary part of establishing a secure financial future for your loved ones in the event that you pass on.