When you think of life insurance, you probably have many conflicting thoughts. It’s one of those things that you know you probably should have, but you know you won’t enjoy the benefits of the payout. The purpose for the policy is “hopefully” far out in the future, so why worry about it right now. It’s tough enough making a decision about life insurance in general but we then have to wrestle with which kind of life insurance, and that’s a whole other matter. So before talking about the different types of life insurance available, let’s explore the purpose, who should have life insurance, and why.

The Purpose of Life Insurance

Life insurance is not unlike any other type of insurance that we may be more familiar with, although it has become more complex in its offerings. Simply put, life insurance is another form of risk protection. Home owners’ and car insurance will satisfy claims against the insured in the event of natural disasters or accidents. These types of events are uncertain in nature and thus the risk that need protecting. With life insurance death is inevitable, but it’s the “when” that’s in question.

It’s also important to realize that, unlike other forms of insurance, life insurance doesn’t directly benefit the insured. When the policy pays out, the insured person is presumably dead (insurance fraud is another discussion). The main benefit is for the beneficiaries of the policy, although the insured’s peace of mind knowing that his/her family will be taken care of can also be considered a benefit.

For this reason, I can’t understand why anyone would purchase life insurance for their newborn baby or for their children. In particular, the commercials for Gerber Life Insurance would have you think that if you love your child enough, you would purchase life insurance for them. While it would be tragic to lose a child, it wouldn’t be a financial hardship that needs to be insured. These policies typically are some form of permanent life insurance (which we’ll cover later) and say that you can lock in a low premium and secure a great financial future. I can see the slant they’re taking with this, but it still screams “sales pitch” to me. Anyway, I’m through with the rant.

Who Needs Life Insurance and Why

I already touched on this in the last section, but it’s important to know whether or not you need, or should have, life insurance before you start shopping around for it. In my view, if you have a spouse, children, or any other family/dependants that depend on you for financial support, then you should probably have some form of life insurance. If you don’t have anyone that depends on you, or if you have other financial means that would be adequate to support any who do, then you may not need life insurance. I maintain that everyone’s situation is a little different, so I don’t want to make a blanket statement, but you get the idea.

The reason for having life insurance should be pretty clear by now. It is there to protect your family and others that you love against financial hardship should you pass away untimely. It is something that should be considered in everyone’s financial plan, and re-evaluated every so often. In the next sections of this series we’ll look at some of the various options that are available for life insurance.

 Subscribe to Fiscal Musings | Digg This! | Stumble it!