Understanding life insurance

It’s important to learn about life insurance because many people who need to carry it don’t, and some who are carrying it don’t actually need it.

At its core, life insurance is meant to protect your loved ones financially. Think about who would suffer financially if you died: If you have a spouse, children, parents or others — even a business — depending on you financially to some degree, carrying life insurance is probably a smart move. If you’re unmarried, have no dependents or are married to a financially independent spouse, life insurance may be unnecessary.

If you’re considering buying life insurance, learn about the two main types of policies — term and permanent. Term insurance is the least expensive, and for many people, it’s best. It provides coverage for a defined period — for example, until your children reach the age of 20, or until your mortgage is paid off. It offers a fixed death benefit, but no cash value.

Permanent life insurance policies come in a variety of forms — such as “whole life,” “universal life” and “variable life” — and are typically in effect for the rest of your life. They often feature a cash value that grows over time at a fixed or variable rate. Their death benefits can be fixed or variable, and they’re generally guaranteed to be paid, as you will eventually die. (Term insurance death benefits may not be paid out if the policy expires before you do.)

Permanent insurance policies can be complicated and sometimes charge onerous fees, so be sure you understand them well before buying any. If you’re thinking of buying one in part as an investment, be aware that you may do better sticking with a simple term policy and investing the money you save in other assets.

Paying for insurance may not be fun, but it’s smart to have the coverage you need — to protect your life, health, home, car and more. Learn more about insurance in general and life insurance in particular at the Insurance Information Institute, Iii.org.