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Life insurance is an essential part of financial planning. One reason most people buy life insurance is to replace income that would be lost with the death of a wage earner. The cash provided by life insurance can help ensure that your dependents are not burdened with significant debt when you die, and the proceeds could mean that your dependents will not have to sell assets to pay outstanding bills or taxes. An important feature of life insurance is that no income tax is payable on proceeds paid to beneficiaries.

Before buying life insurance, you should assemble personal financial information and review your family's needs. There are a number of factors to consider when determining how much protection you should have. These include: any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes; funds for a readjustment period, to finance a move, or to provide time for family members to find a job; and ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement. A quick rule of thumb is to buy life insurance that is equal to about 5 times your annual gross income.

Buying life insurance is not like any other purchase you will make, and as with any other major purchase, it is important that you understand your needs and the options available to you. The two main types of life insurance available are Term Life and Whole Life.

Term Life Insurance
provides protection for a specified period of time (6 months, 1 year, 2 years, etc.)

premium payments are generally lower that Whole Life premiums

payments are based on the term/time period and age of the policy holder

payments increase with advanced age

Term Life builds no cash value; when the term period is over, the policy can be renewed or it expires.

Whole Life Insurance
remains in force for the insured’s life time (assuming no cancellation for non-payment)

(in most cases) premiums payments paid annually and do not increase with advanced age

builds cash value

insured/policyholder may obtain a loan against the accumulated cash value

Advantages of Having Life Insurance
Provides income tax-free money to your named beneficiary(s) that can be used to pay mortgage, tuition, funeral expenses, estate taxes, debt or virtually any financial needs you leave behind.

Can provide business security by enabling partners to buy out the interests of a deceased partner and prevent a forced liquidation.

The cash value growth of a whole life insurance policy is tax-deferred, which means you do not pay taxes on the growth of the cash value unless the money is withdrawn.

Loans or withdrawals can be taken against the cash value of a whole life insurance policy to help with expenses such as college tuition or the down payment on a home.