Life insurance is a contract between an insured and an insurance company. Traditionally, life insurance was designed to cover the expenses and loss of income upon the death of an insured. If the insured dies while the contract is in force, the insurance company pays the face value (death benefit), free of income tax to the beneficiary. The next 50 years will see the largest transfer of wealth, to the next generation, in the history of the world. Since Social Security provides for only about 15 percent of the necessary income for the average personís retirement, the burden is placed on the individual. Insurance, of course, is the only logical method of providing the income for this phase of life that, hopefully, comes to everyone. Life insurance is designed to spread the cost of the financial loss, resulting from death, from an individual to a group. People purchase insurance to protect their homes, their cars, their valuables, and in some cases even their money. It would naturally follow therefore, that they would also purchase insurance to cover their most valuable possession... their lives.

Today, individual life insurance represents the greatest amount of in-force insurance business in the United States. There are three general types of life insurance: whole life, term life, and universal life, which is in reality a form of whole life. The term "ordinary life," while not completely correct, is often used to describe individual insurance. Insurance is a device for spreading the risk of financial loss over a large number of people. The purchase of insurance allows a person to share risk with a group, thus reducing the potential for the individual to suffer disastrous financial consequences. This sharing is done automatically by the insurance company which collects small amounts of money (premiums) from a large number of people. By the use of statistics, insurance companies predict the amount of loss that must be covered annually and reserve an amount necessary to cover those predicted losses. The sharing of risk and the pooling of funds among a large number of similar risks allows an insurance company to make protection available to most individuals at an affordable cost to each.

Life insurance is available in several different forms. There is Term Life, Universal Life, and Whole Life. It is easy to be confused as to the best application for a particular short term or long term need. There are different schools of thought when it comes to life insurance. Some feel Whole Life and Universal Life are excellent investment mechanisms. Others will say that Whole Life and Universal Life (with cash value) are a poor choice for investing in the future, but rather to buy Term Insurance and invest the difference. What the main factors are is, what your immediate needs are, what your future needs are, how disciplined you are with your finances, and what other types of future retirement vehicles you may already have in place.

  • What is your goal and intention of securing the life insurance?
  • How much money are you willing to allocate for the intentions you have?
  • Do you understand the pros and cons between the different forms of life insurance?

Ask your agent more detailed information about Life Insurance in person.


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