Taking Care of Your Loved Ones

Life insurance is one of the pillars of personal finance, deserving of consideration by every household. I’d even go so far as to say it’s vital for most. Yet, despite its nearly universal applicability, there remains a great deal of confusion, and even skepticism, regarding life insurance.

To help, here are 10 things you absolutely need to know about life insurance:

1.If anyone relies on you financially, you need life insurance

2.Life insurance does not simply apply a monetary value to someone’s life. Instead, it helps compensate for the inevitable financial consequences that accompany the loss of life. Strategically, it helps those left behind cover the costs of final expenses, outstanding debts and mortgages, planned educational expenses and lost income.

3. Life insurance is a contract (called a policy).
4. There are four primary players, or roles, in a life insurance policy. These roles belong to the insurer, the owner, the insured and the beneficiary. The insurer is the insurance company, responsible for paying out claims in the case of a death. The owner of the policy is responsible for premium payments to the insurance company. The insured is the person upon whose life the policy is based. The beneficiary is the person, trust or other entity due to receive the life insurance claim—or death benefit—in the case of the insured passing.

5.Life insurance is a risk management tool, not an investment.

6.There are two broad varieties of life insurance about which you should become aware—term and permanent.

7. Life insurance can be extremely expensive, but it can also be surprisingly inexpensive.

8.Determining the optimal life insurance policy for you doesn’t have to be complicated.

Therefore, consider this simple but effective strategy for determining how much life insurance your household needs. Multiply a wage earner’s income by 15 and purchase a policy with an equivalent death benefit for a term that extends until the person insured would presumably retire. Why 15? Because it works. But it works because it results in a number that should re-create 75% of a wage earner’s income if the death benefit was conservatively invested to earn 5% .

9. Consider using a live person to help in your death planning.

10.Know your options when cancelling an existing life insurance policy so you don’t leave money, or coverage, on the table.     From Forbes