Life insurance a key for managing risk

May 23, 2012

Life insurance can help protect family over a long period of time.

Shopping for life insurance is an important financial decision and as  as Tim Maurer, a financial planner, writes on Forbes, buying a life insurance policy is necessary to provide financial stability after the death of a loved one. Instead of thinking of a life insurance policy as something that buys off pain, he said people should think of insurance as something that will allow people to mourn their loss without having to worry about money and finances.

"The act of dying, in and of itself, does not create a need for insurance, but the result of your death may," Maurer writes. "Life insurance could more aptly be named income and expense insurance as these are the risks it covers. Life insurance exists to provide money that you or your family do not have. If you already have the money that will be needed, having insurance is like carrying two umbrellas on a sunny day."

A life insurance policy should be designed to cover the need of loved ones left behind. For many, that means applying for a life insurance policy to cover a famliy's daily living expenses, debts, and future costs.

Those looking at life insurance will then need to break it down by which type of insurance they need, whether term insurance or permanent life insurance. With a term policy, there is no cash value, but it will pay out if the policyholder passes away during the life of the policy. Many applicants favor term for it's affordability.

"For the family that can reasonably plan to reach financial independence in the next 20 years, this is a very appropriate product," Maurer writes on Forbes. "Term is also sold in many variations with lengths as short as one year, but also in nearly every increment of five up through 30-year term. Virtually all of the life insurance needs can be adequately insured with term."

In regards, to permanent life insurance, James Hunt, actuary for the Consumer Federation of America, told SmartMoney that he has looked at thousands of life insurance policies and said whole or permanent life insurance policies rarely yield a return unless they are held on for 20 years or longer.


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