Choosing the Right Type of Life Insurance
Life insurance is a great idea, but it is not an investment in
the strict sense of the word. In an investment, you put money into a venture,
asset, or financial instrument with the expectation of a return. Insurance, on
the other hand, transfers part or all of your risk of loss to the insurance
company. You may not think of insurance as an investment, but if you die
unexpectedly, your heirs sure will be grateful you bought insurance.
Objectives of a Life Insurance Investment
insurance is a hedge against unexpected death. You cannot predict when you
will die, but you can be be proactive and take the right steps to prevent your
death from being a financial burden for your family.Life
insurance is a critical step in any financial planning process if you have a
family, because it protects your partner and dependents. For example, if you
are married and responsible for not only providing the income that covers key
household expenses, such as making the monthly mortgage payments, then it is
critical to have life insurance. With the right coverage, you'll provide the
mans for your partner and surviving dependents to pay off the mortgage and fund
Two Types of Life
are two main types of life insurance: term life insurance and permanent
life insurance, also known as whole life insurance.
Life Insurance:- Term life insurance provides protection for a specific
period of time. A good analogy for term insurance is renting an apartment: As
long as you make your monthly payment you have access to the asset. In this
case, your beneficiaries receive a payout if you die while the policy is in
Life Insurance:- Whole life insurance offers a cash payout at the end of
the policy. Whole life insurance is similar to owning a house, your monthly
payment may be higher than monthly rent, but you have the opportunity to build
equity. Your insurance company invests your premiums so that when you reach
retirement age, it has a cash value. Companies offer different types of
permanent life insurance. You may be able to choose between fixed and variable
premiums, have the flexibility to change payments, take on higher investment
risk for a potential higher return, or choose to cash-out value that has built
is possible to buy a mix of both term and permanent life insurance. Talk with
your financial advisor about your financial goals and suitable life insurance
options available for you.
policies come with risks. For one, the investments may not perform as well as
the examples your insurance agent shows you.
Investment or Not?
insurance is not, primarily, an investment. However, this doesn't mean that
life insurance is not necessary. Having the appropriate life insurance will cover
your dependents against financial loss such as mortgage payments and other
financial obligations. Talk with your financial advisor about your life
insurance options, to find the plan right for you.