Death can strike anyone at any time. When death strikes surviving family members often suffer if they are left without adequate financial resources. The insurance industry offers a solution to this potential dilemma in the form of life insurance. But is life insurance needed?
Like so many other general financial questions the answer to this inquiry is “it depends.” Life insurance is primarily used as a solution to the economic loss incurred upon someone’s death. In most cases a person’s death will result in economic hardship for surviving dependants. Life insurance is all about responsibility.
But this is not necessarily the case. A young person with no dependants, for example, has very little use for life insurance and should probably go without. An unmarried person with no dependants should likewise consider doing without life insurance, this person would have no one counting upon their income to survive.
Many workers however work to provide not only for themselves but for their families as well. In the event of this worker’s death the entire family may be unable to cope with the loss of income. This is where life insurance becomes of vital importance.
In addition to providing a pool of funds upon the insured’s death a whole life insurance policy will also invest money into a fund, helping the policy owner save money for use in paying life insurance premiums later on in life or to use as an investment.
A term life insurance policy is the simplest form of life insurance. Term life insurance is typically relatively inexpensive. It will cover the insured for a specific amount of time for a specified death benefit- the amount that the policy will pay upon the owner’s death.
Upon completion of the initial term the contract is over with no additional benefit for the insured. That is, if the policy was for ten years after that ten years the policy is over and the owner has nothing to show for it.
A whole life policy builds a cash value so that after several years there is a pool of money that the policy owner may draw upon. Even upon the cancellation of the policy these funds may be kept by the policy holder. Whole life policies also exist for the policy holder’s entire life, hence the name.
Many variations of these two types of life insurance exist, but both have the same underlying purpose, to provide for dependants after the death of the policy holder. Is life insurance needed? If you have dependants the answer is definitely. It would be irresponsible to forego life insurance in this scenario.
The few dollars a month that a term life insurance policy may cost now may seem like money just thrown away, but in the event that that policy needs to be exercised it will be far worth it.