Life Insurance 101

Posted by Mackenzie Arsenault on October 12, 2018

The purpose of life insurance is quite simple – it protects those who rely on you for income if you were to die prematurely. Naturally, life insurance is important when you have minor children, or others who are financially dependent on you. If you are single without financial dependents, you may not need life insurance. If you are married without children and your spouse would be fine financially on their own, you also may not need it.

For those that do need life insurance, there are two types: term and permanent.

Term life insurance is typically the cheapest option as it protects you for a specific period of time. You pay an annual premium and the plan will pay out a ‘death benefit’ if you die during that term to your beneficiary.  Term life insurance is usually the most cost advantageous.

Permanent/whole life/cash value life insurance policies are all options that have a ‘cash value’ that can be used as a savings account. However, these products characteristically have a high commission that is paid to the person selling them and high internal expenses. The pitch for these products can sound ‘too good to be true’ and can be.

If you need life insurance, term insurance is typically your best option. Other investment vehicles, such as IRAs or 401(k)s that have favorable tax treatment, can be used for savings.

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