There are two types of life insurance:
Term Insurance
- Term insurance is protection against premature death. If the insured dies while covered, the insurer pays the beneficiary the face amount of the policy.
Permanent or Cash Value Insurance
- Cash value coverage combines a death benefit and a saving account with tax deferred earnings. The savings account is also known as the policy's cash value.
If you have financial dependents and your savings isn't enough to cover their long term needs, you need life insurance. You probably don't need life insurance to fund retirement or to pay for college education. There are better ways to fund these goals.
- Before considering a life insurance policy as an investment, make sure you're using all the other tax deferred investments available - 401(k) plan, IRA's etc.
- If you're single and have no dependents or have a self supporting spouse, you probably don't need life insurance.
The amount of life insurance needed depends on the amount of income that has to be replaced and for how long. As a rough rule of thumb, a person with young children needs coverage of 7 to 10 times their annual salary. We can help refine the calculation.
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