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Basics of Life Insurance

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Life Insurance: The Basics

Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death. Today it is used for many reasons, including wealth preservation and estate tax planning. Of course, it still provides you with the opportunity to protect yourself and your family from personal risk exposures like repayment of debts after death, providing for a surviving spouse and children and fulfill other financial goals such as college funding, leaving a charitable legacy or paying for funeral expenses.

Life insurance protection is also important if you are a business owner or a key person in someone else's business, where your death (or your partner's death) could prevent the business from continuing its operation. One of the key benefits from any type of life insurance is that the death benefit that is paid out is always tax free. All life insurance policies involve four separate parties: the insurance carrier, the policy owner who pays the premiums, the insured upon whose death the policy will pay out and the beneficiary who receives the death benefit proceeds.

Who Needs It?

Not everybody needs life insurance. If you are single and have no dependents, it may not be worth the expense. If, however, you have anyone who financially depends on you (even partially), life insurance may be appropriate for you. When considering life insurance, ask yourself the following questions:

  • Do I need life insurance?

  • How much do I need?

  • How long will I need it?

  • What type of policy makes sense for me?  

Your need for life insurance will depend on your personal circumstances, including your current income, your current expenses, your current savings and debt and your family's goals. Many planners recommend coverage equal to at least six to 10 times your gross annual income, but your or your family's needs may differ from that. You will have to compare the what you have versus what goals you'd like for your family once you are gone, keeping in mind that their security can often carry a higher price tag than you originally thought.

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Personally, I find the need and significant benefits of signing a life insurance policy. Simply because we live in such unsecure world and especially in relation to world economy. I find life insurance as a good way to protect my family at least financially

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