Reasons for Life Insurance

by Contributing Writer

Overview

Life insurance generally serves two functions: (1) as a safety net for your family should you die and (2) as an investment tool. The two primary forms of life insurance are term life insurance and whole life insurance.
Reasons for Whole Life Insurance

Whole life insurance combines investment attributes with life coverage, should the policyholder die. The most important issue in measuring whether to buy whole life insurance is the internal rate of return offered by the policy after accounting for all of the expenses and fees incurred for holding the policy.

Reasons for Term Life Insurance

Term life insurance is life coverage without the investment aspect of whole life insurance. Term insurance is less expensive than whole life because it does not include the investment component.
Determining the Need for Life Insurance

Life insurance is most useful as a safety net to cover the financial needs of the survivors following the policyholder's death. The main reason for buying life insurance is to pay the debts of the deceased and to provide for those who survive him.
Determining the Amount Needed

The amount of life insurance needed depends on several variables, including the income level of the surviving spouse, the size of savings, the size of debts, the age and number of children, and the level of income of the policyholder prior to death.
Peace of Mind

Though it is impossible to quantify, life insurance helps avoid potential worries about burdening your family or leaving it financially unable to maintain the lifestyle to which it grew accustomed during your life.