What is Life Insurance?
At the most basic level, life insurance is a type of insurance that will pay a one time cash payment to one or more designed people at the time of the insured's death.
Like any other insurance, in exchange for manageable period payments (called a premium) life insurance is designed to compensate in the event of a financial loss in the future. Just as car insurance protects your family from financial loss in the event of an accident and homeowner's insurance protects your family from financial loss in the event your house is damaged, life insurance protects your family from financial loss in the event that a family provider (whether of wages, childcare, eldercare or other means) dies

When Do I Need it?
You need life insurance when others depend on you financially or otherwise. So, if no one depends on your income or labor to support them, you probably don't need life insurance. However, if there is someone that depends on you to support them (financially or otherwise), you need life insurance to provide for that some in the event of your death.
We find that in most families, both parents (or caretakers) will need life insurance because each parent (or caretaker) is either providing income or vital services that the family depends on. However, as your children (or dependents) mature and become financially independent, there is less need for life insurance to protect them. Of course, special considerations are needed for families with long-term needs.
On the other hand, if you family's wealth is great enough that the death wouldn't effect your family's financial security (or if no one is depending on your income or other labor for their support), then life insurance may not be needed. Likewise, few minor children need life insurance because they usually are not providing income or vital services that the family depends on.

How Much Do I Need?

The answer to this important question is different for every family. To help you figure out how much life insurance you need the Inheritance Network simplified the process and created our Life Insurance Calculator. Just enter the amount of money that you estimate is needed for each category and click Calculate

What Type Should I Buy?
There are two broad categories of life insurance, term and permanent.
Term insurance <../life-insurance/term-insurance.php> is simple and straight forward life insurance that is for a certain period of time (usually 1 year, 10 years, 20 years or 30 years). Term insurance is called "term insurance" because it is active for only a certain period of time (much like a United States President is elected for a certain "term" of four years). Term insurance typically only costs a fraction of permanent insurance.
Permanent insurance <../life-insurance/permanent-insurance.php>, on the other hand is more complicated life insurance because it combines insurance with investments. Permanent insurance is called "permanent" because even "permanent" policies last for the entire life of the insured person ("permanent" is a bit of a misnomer because even "permanent" policies expire when the insured dies). Permanent insurance typically costs much more than term insurance because of its investment component and lifelong coverage. Keeping these two main distinctions in mind is very important. Determining if you want term or permanent insurance is the most important step in determining what type of life insurance you should buy.

Term Insurance

Term insurance is simple and straight forward life insurance that is for a certain period of time (usually 1 year, 10 years, 20 years or 30 years). So that if the insured dies while the insurance is in effect, the beneficiary receives payment of the value of the insurance. If the insured person outlives the term of the insurance, the insurance will expire unless the insurance is renewed.
Term insurance does not have an investment component and only protects your family during the term of the policy. This is how most insurance works (car, medical, homeowners) and means that unless there is a cash payout during the coverage period, the insurance company keeps the premiums.
Types of Term Life Insurance
There are three main types of term insurance: level term, renewable term and declining term.
Level Term Insurance is the most popular type of life insurance. It enables the purchaser to lock in a level premium and amount of coverage for the specified length of term. For example, a premium of $100 per year for ten years purchasing $100,000 of coverage for ten years.
Renewable Term Insurance automatically renews at the end of each term (usually one year), regardless of any changes in health or insurability. At renewal, the premium changes to reflect the insured's probability of death. In nearly all cases, this means that the premium rises at renewal.
Decreasing Term Insurance is relatively rare. It has a level premium and a gradually shrinking amount of coverage. These policies are utilized to fund obligations for which the principal decreases over time, like a mortgage.
Permanent Insurance
Permanent insurance, including whole life insurance and universal life insurance, has two key features. First, permanent insurance provides coverage throughout the life of the insured person. Second, permanent life insurance provides insurance combined with savings and investment components. This allows permanent life insurance policies to build a cash value that can be borrowed against to help fund future goals, such as a child's college education.
Types of Permanent Insurance
There are two main types of permanent life insurance, whole life and universal life.
Whole Life Insurance offers permanent life insurance with a fixed annual premium. Whole life policies accumulate cash values and the death benefits gradually increase with time.
Universal Life Insurance is permanent life insurance with a flexible annual premium and flexible death benefit. In a universal policy, you generally have a minimum payment equal to the cost of term insurance, plus administrative costs. Any payments made above the minimum are credited to the cash value component of the policy.
In both whole life and universal life, the investing abilities of the insurance company that issues the policy is extremely important, as the cash value and death benefit that accumulate will depend, in large part, on the success of the investment decisions that the insurance company makes with your money.
If you would like some additional control over the accumulation of wealth in your permanent insurance policy, "variable" insurance may be appropriate for you. Variable insurance allows the insured to choose from a number of investment choices for the cash-value of the permanent policy. This selection process works much like a company 401-K plan. There is variable whole life insurance and variable universal life insurance..