Life insurance is a type of insurance policy that pays money out to one's family or other loved ones specified in the policy in the event of death. The purpose of life insurance is to lessen the financial burden that death may place on loved ones, especially the death of a primary breadwinner.

When to Buy

Life insurance is an optional insurance that need not be purchased by everyone. The main reason to buy life insurance is if you have loved ones that you are responsible for that would be burdened if the event of your death. The people who are most in need of life insurance are those with dependents, especially young children. For married couples in which one partner does not work, the breadwinner often carries life insurance to protect his spouse. Young people who have no dependents, are not married, and are in good health usually have no need to buy life insurance. That said, buying life insurance is cheapest when you are young and healthy, because the likelihood of death is low. It can be worth buying life insurance while you are young and healthy to get better rates in anticipation of having dependents later on in life.

What to Buy

There are two main types of life insurance: whole-life coverage and term coverage. Whole-life coverage is a type of permanent benefit that lasts your whole life until you die, guaranteeing a payout. Term coverage on the other hand, lasts for a given period of time and if the insured happens to die within that period, the plan pays money to the beneficiaries. Term coverage is typically much cheaper than whole-life coverage, since it does not guarantee a payout and the likelihood of dying within the term is often low. Term coverage is a good way to guard against an unexpected death from an accident or illness without having to pay as high of premiums, while whole-life coverage is more of a long-term plan that protects against possible sudden deaths, but also carries benefits into old age. It can be important even for retired people to have some level of health insurance to cover funeral costs for their family.

How to Buy

Buying life insurance policies is similar to buying other types of insurance. There are many different insurance companies that offer life insurance, and each plan is likely to be a little bit different. It is important to research all of your options before making a decision as to what plan to buy; the Internet can be a great resource for finding and comparing the benefits of different life insurance plans. In some cases you may even be able to purchase plans on the Internet, which can be helpful for those who want to avoid pushy salespeople. If you don't understand a certain plan or want to speak to a real person about plans, call an insurance agent.

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Life insurance basics