Life insurance is a great idea, but it is not an investment in the strict sense of the word. In an investment, you put money into a venture, asset, or financial instrument with the expectation of a return. Insurance, on the other hand, transfers part or all your risk of loss to the insurance company. You may not think of insurance as an investment, but if you die unexpectedly, your beneficiaries sure will be grateful you bought life insurance.
Objectives of a Life Insurance Investment
Buying life insurance is a hedge against unexpected death. You cannot predict when you will die, but you can be proactive and take the right steps to prevent your death from being a financial burden for your family.
Life insurance is a critical step in any financial planning process especially when you have family members that rely on you financially. Life insurance protects your partner and dependents. For example, if you are married and responsible for providing income that covers key household expenses, such as making the monthly mortgage payments, then it is critical to have life insurance. With the right coverage, you’ll provide the means for your partner and surviving dependents to pay off the mortgage and fund living expenses.
Two Types of Life Insurance
There are two main types of life insurance: term life insurance and permanent life insurance, also known as whole life insurance.
- Term Life Insurance Term life insurance provides protection for a specific period of time. A good example for term life insurance is renting an apartment: As long as you make your monthly payment you have access to the asset. In this case, your beneficiaries receive a payout if you die while the policy is in effect. Once you stop paying rent or your lease is up, you have to move out, so is the same with term life insurance, once you stop paying, or the term ends, the coverage stops.
- Whole Life Insurance Whole life insurance offers a cash payout at the end of the policy. Whole life insurance is like owning a house, your monthly payment may be higher than monthly rent, but you have the opportunity to build equity. Your insurance company invests your premiums so that when you reach retirement age, it has a cash value. Companies offer different types of permanent life insurance. You may be able to choose between fixed and variable premiums, have the flexibility to change payments, take on higher investment risk for a potential higher return, or choose to cash-out value that has built up.
It is possible to buy a mix of both term and permanent life insurance. Talk with your financial adviser about your financial goals and suitable life insurance options available to you.
Please call us directly so we can make sure we can make sure you are covered correctly.
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Email: Sam@SJInsuranceServices.com
