Who doesn’t need life insurance?
People that do not have any dependents, do not have any debts or are wealthy enough are the kind of people for which life insurance might not make much sense. But that is not the reality for the rest of us.
For most people, Life Insurance is the best way to:
- Protect your family’s quality of life if you, as the main earner, pass away.
- Pay off your debts, like a house mortgage.
- Transmit wealth to the next generation.
- Pass down your business as a financial legacy.
- Support your most cherished charity, association or cause.
Life insurance is a key component of a well-thought financial security strategy and one of the best ways to protect those you cherish most in life.
Understanding life insurance
RENT.- Think of when you rent an apartment, it is “yours” while you pay the rent and you can “use” it while the rent contract is in force, but you will loose it when you stop paying rent or the contract is finished. This is Term Life Insurance.
Term Life Insurance offers you a contract for a specific number of years: 5, 10 or 20 are the most common term periods. You are protected as long as you pay the premiums and the policy is in force for the number of years selected.
This kind of Life Insurance is used to protect very specific needs that will disappear in time, like paying off your mortgage or your kids becoming independent adults.
LEASE .- Now, think of a house with a permanent rental contract. It is not your house, you do not “own” it, but it is yours to live in it as long as you are alive. This is Permanente Insurance.
Permanent Life insurance is more expensive compared to Term Insurance but the good thing is you are locking the rent (or premium, as we say in the insurance world) for all the duration of the “lease”, i.e., for the rest of your life.
With Permanent Life Insurance you know that you will be protected for as long as you live and your premiums will never increase so you will never loose your protection.
Many financial security plans include a combination of Term and Permanent Life Insurance.
OWN.- When you buy a house, even if you are the owner, you do not really own the house while you are still paying the mortgage, but once you have paid it off you become the true owner. Something similar happens when you “own” your insurance contract.
This type of insurance is also permanent, but instead of having to pay for it all your life, you can decide to pay for only 10 or 20 years after which the policy will keep on going, you will have the protection for your family in case you pass away but you will also have a portion of value that will keep on growing within the policy, this is called “cash value”
There are many advantages to a Life insurance policy with cash value, knowing when and how to make it part of your financial security strategy is something you should discuss with a professional financial security advisor.