Life insurance is a simple concept - you buy a policy that pays to your beneficiary or beneficiaries when you die - but the decisions of what kind of life insurance to purchase, how much of a death benefit and how much you pay are extremely complex.
Note. There are more than 2,000 companies selling life insurance in this country. Some are very good, financially solid companies; others are not so sound. A company's financial strength is vitally important to you because hopefully, no one is going to collect on your life insurance for a long time, but when the time comes, you want the insurance company to be around, and able to pay your beneficiaries.
You want to make sure your life insurer will be around for the long haul. How do you do this? You can consult with an experienced insurance professional, which is probably your best bet, or you can look at how various independent organizations "rate" the life insurers you are considering. Ratings are like school grades, A+, A, A-, B+, etc. In general, it's wise to stick with companies that are rated A or better by most rating organizations.
Uses of Life Insurance
Life insurance tends to fall into two categories:
- Protection: this type of life insurance is designed to “protect” the beneficiaries by way of a payment in the event the insured person dies. The most common type of “protection” life insurance is referred to as Term Insurance
- Investment: these types of life insurance policies can still provide a death benefit, but their primary objective is to produce an investment gain. Common types of “investment” life insurance policies are Whole Life, Universal Life and Variable Life