Friday, November 25, 2011

What Is Life Insurance - Is It Really Needed

Life Insurance is a financial product that has been around for many years. It comes in many shapes and forms and has been sold under many names. How do you know if you need it ?

The purpose of Life Insurance is to pay your beneficiary a specified amount of money in the event of your death. It is needed if you have someone in your life that depends on your employment income to survive. This could be a child, a spouse or even parents in some cases.

If you have a family to support and you do not have a substantial amount of money invested, chances are you should have some life insurance. The amount and type will depend on many factors which should be reviewed by a competent life insurance broker prior to your purchase.

In the past, life insurance has been sold to many individuals who did not have a need for it. For example, new college or university grads were targeted by insurance agents as a new source of long term revenue for them. Do most new college or university grads have a family to support ? Not most of them. Most of them did not need life insurance.

Life insurance is normally something that is sold, not something that most consumers go out and buy. What this means is, insurance companies use various forms of direct marketing techniques to contact individuals and try to persuade them that they need life insurance. Many people do not need life insurance but are persuaded by clever sales techniques that they do. Be aware.

How To Buy Life Insurance if you Have a Need

As a consumer, what you should be doing is taking control of your insurance needs and starting the process of shopping around for the best deal. Do not wait for a sales person to make first contact. You need to look around and compare different products just as you would any other purchase.

Many insurance companies combine a savings element in their policies to use as a lever to make you feel better about buying the product. In most cases it would be better for you to develop your own savings plan, as you have more control over the use of it and what it is invested in.

When shopping around for life insurance, I would recommend in most cases to look at term life policies only. Stay away from any products that have a savings element involved. They generally pay a much higher commission rate for the agents and you know who will be paying that.

Term policies come in varying lengths of time. What this means is your monthly or annual payment (called a premium) will be fixed for the length of the term. Examples are 5 year, 10 year, 20 year etc. Generally the shorter the term, the lower the premium.

If you have a savings plan in place, the amount of insurance you need in the future may be less than what you need today. In this case you may be best to buy the shorter term insurance and review your needs again just prior to the end of the term.

Please use the information here as a guideline only. Find yourself a qualified insurance broker (sells products for more than one company) and have him/her work with you to determine your best life insurance plan.

The main point here is to take control of your own needs and find someone who will work with you and not try to sell you something you don't need.

As always, I welcome your comments and any suggestions for future topics.


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