Some people believe that having life insurance -- planning for their death -- will bring misfortune to their lives, and would rather not have any at all. Unfortunately, too many people don't realize the importance of life insurance until it's too late.

Life insurance protects those who depend on your paycheck, such as your wife, children and quite possibly, your parents. If you die prematurely, life insurance can provide ongoing income to your dependents, until they are able to live comfortably without it. It can also provide emergency support for legal, medical and funeral costs, should family savings not be sufficient to cover them.

who needs life insurance?

A single individual -- or someone who's one-half of a two-income, no-dependents household -- won't likely need an abundance of life insurance, if any.

Remember; life insurance is not a state lottery. Its purpose is to cover any unexpected costs that a family unit cannot afford or that would put the family's financial situation in peril. At this stage in your life, the main concerns to plan for are funeral costs, and unexpected estate taxes.

On the other hand, if you're the sole breadwinner for a large family, with little savings, then life insurance is essential. Once basic items such as shelter and food are covered, life insurance should be next on your list of priorities.

Imagine yourself gone tomorrow; what would the immediate impact on your family be? Are they counting on your paycheck in the years ahead to cover basic needs and future savings goals? Could they afford the funeral costs? Who would pay the home mortgage? Would your family be thrown out on the streets?

At this stage in your life, if you still don't have life insurance, maybe it's time to consider getting some -- not for your sake, but for your family's.

which plan should you get?

In general, there are two basic classes of insurance to choose from: term life insurance, and universal or cash value insurance.

Term life insurance is just that -- life insurance, and nothing more. The premium payments are applied 100% to the cost of the insurance.

As retirement approaches, the need for life insurance is likely to decline, as children become able to support themselves and retirement savings begin to approximate a lump-sum life insurance payment. At this point, term insurance can easily be dropped.

the advantages of term insurance

Simple
Term life insurance, much like car insurance, is the essence of simplicity -- pay the premium, get covered for the term.

Competitive prices
Because of their simplicity, term life policies can be easily compared on the basis of price alone, which has effectively led to extremely competitive prices.

Flexible
Most term policies are very flexible, allowing for both renewable (you can renew for another term policy without a medical exam) and convertible terms (convert your term policy into a universal policy).

Maybe you're better off with universal insurance instead... Next >>