In financial planning, you need to decide on your goals, and understand the risks. The most basic financial goal you all strive for is to provide yourself and your family with a desired standard of living. Another important goal is to have enough money at the time when you are unable to earn, such as when you retire or die.
In a total financial plan, life insurance guarantees that long-range objectives will be automatically met if the critical element of time is taken away by unplanned-for death. Life insurance is the only investment that can do that. It is the only financial tool guaranteeing goals of providing your family with the standard of living you want for them now and in the future.
Most financial advisers cannot agree on the type of insurance to be included in a well-rounded life insurance. Different kinds of life insurance are designed to meet different types of needs and situations. In other words, the kind of life insurance you should buy depends on you, on your specific objectives, and on the rest of your overall financial plans. By defining your needs and objectives, you can tailor a life insurance plan to fit your particular situation.
Term insurance, also called temporary insurance, offers protection only, and insures you for a limited period of time. If you die during that period, your beneficiary receives the amount for which you were insured for. If you outlive the period, the coverage expires and you will not have anything. You may or may not realize something for premium payment, other than peace of mind. The policy comes up for renewal at the end of the term. No matter how many payments you make on it, you do not build up any financial interest in it.
The advantage of term coverage is that the premiums are generally lower than for any other kind of life insurance you can buy, especially at a younger age since the risk of someone dying at that age is less. However, with most term policies, you pay a higher premium every time you renew them since the risk increases as you get older.
Permanent life insurance offers lifetime protection with affordable fixed level for life. And since life insurance needs normally last a lifetime, there is a strong argument that permanent life insurance is the most logical foundation for a financial plan. Permanent life insurance provides not only protection but also offers steadily increasing cash values that are payable whether you live or die.
A fixed level premium means your cost of protection never increases. Under the permanent life insurance policy, the policy holders are obliged to make premium payments which keep their cash value accounts growing steadily. This forced saving feature of permanent life insurance provided several benefits. For one thing, you continually add to a liquid fund that is available for emergencies or opportunities. But perhaps the greatest benefit of those forced savings is that insurance coverage tends to stay in force. The lifetime protection gives you the opportunity to invest more speculatively with the rest of your money.
You may need term insurance if you are young and need a lot of protection but may not have a great deal of discretionary income to put into a financial plan for the future. But the increasing premium, lack of equity and the potential lack of availability at a later age when the risk is often the greatest do not make term insurance a good proposition. In the case of permanent life insurance, its drawback, from a pure investment standpoint, is that the interest rates earned by your cash values might look fairly low compared to what most investments are earning. However, one of the greatest strengths of life insurance is its safety, and there is always a trade-off between safety and return. In this case, you should not hesitate to make the trade-off, particularly in a total financial plan that needs the guarantees of life insurance to justify riskier, more growth-orientated investments in other parts of the plan. The protection is important to guarantee a comfortable, lifelong standard of living for you and your family. You can also discuss with your life planner about how many life insurance policies can i have as in some cases you can buy more than one type of insurance policy and this way you protect yourself from any unwanted financial situation in future.