What Is Life Insurance?

Life insurance is, like any insurance, basically a controlled gamble that the insurance company almost always wins. Regardless of the odds that you will ever collect on an insurance company, the premiums are usually so low, and the reward typically so critical, that many people feel the risk is well worth it.

Life insurance is an agreement between you and an insurance company that you will make premium payments - established by them - on a regular basis, for the length of the policy, in the case of low cost term life insurance, or until you have satisfied a certain amount, in the case of whole life insurance. In exchange for your agreeing to make these payments, the insurance company promises - with certain possible exclusions - to pay someone you name in the case of your death.

Do I Need Life Insurance?

That all depends primarily on three factors:

• Does anyone else rely on your income in order to live?
• Does anyone else rely on services you provide (such as being a housewife/mother)
• Are you independently wealthy?

If you answered yes to either of the first two questions, or no to the third, then you should probably have life insurance. If you have a spouse or children who are used to your income coming in, life insurance will help them to replace that income in case you die. Even if you are single, you should consider a minimal life insurance policy just to help your family with burial expenses which can be $10,000 or more.

If you are a housewife or mother to children, you should have a life insurance policy. It is a common mistake for families to believe that only the working spouse needs to have life insurance, but the fact is that if the non-working spouse or parent dies, the working spouse will need to continue working and the children (if any) will still need care one way or the other. Even if there are no children, there are things that the non-working spouse does (like cleaning house) that a working spouse will severely miss being done, and the payment of a life insurance benefit can help allay those missing functions with professional help.

If you are independently wealthy congratulations, you probably don't need life insurance. In the case of your death, whatever source of income you and your family were living on, should continue for your family, and the additional money of a $500,000 life insurance policy (or more) isn't going to mean that much to those left behind. It is possible to be independently wealthy and barely so, however, so consider carefully the effect your demise would have on your family left behind. If being suddenly hit with grief and an expensive bill to bury your remains would cause any kind of hardship, you should consider an insurance policy at even a minimal amount to help defray costs.