The purpose of life insurance is dependent on the age and financial status of the person purchasing the insurance. Most young people just starting out with a family purchase life insurance as a means of income replacement should something happen to them. Life insurance means that their family would have financial protection without an important income. Older people often purchase types of life insurance as a means for their family to cover burial expenses and any outstanding financial obligations, as well as a way to leave an inheritance amount to loved ones.

There are basically two types of life insurance. Term life insurance is also referred to as cash value, and permanent life insurance is referred to as whole life. 


•Term Life Insurance – These are relatively inexpensive life insurance policies that pay out a cash value when the policy holder dies. There is no cash build-up with these policies. Premiums are paid based on the age and general health conditions of the policy holder and beneficiaries are assigned to the policy. This keeps the premiums of term life insurance low, as the person purchasing the policy only selects the amount necessary to cover final expenses and leave a cash value to loved ones. These policies do expire after a certain date defined on the policy.

•Permanent Life Insurance – A person looking for a way to leave a nest egg to beneficiaries can select an insurance policy that can actually build cash value. These policies have no expiration date, hence the term whole life and permanent, and once the premium is set it cannot be increased for any reason. One real benefit of these types of policies is that they are flexible. The policy holder can borrow against any paid premiums in a tax-favorable way in the case of emergencies. But probably the major reasons these policies are issued is that the policy holder wants to provide inheritance protection to family members.

There are variations of these two basic types of life insurance that incorporate aspects of both of them. Universal Life insurance can build cash value, but is actually only a yearly policy so premiums could increase. While Variable Life insurance has fixed premiums and cash value, the policy holder can actually participate in the decision of how funds are invested.

Bottom line is that a person’s financial condition, age, and end-of-life plans will determine types of life insurance policy that are best. Always consult with a professional financial planner when making this important decision.