A Guide to Life Insurance - How to Protect Your Family

Investing in life insurance can ensure that your family is protected in the event of your death. Life insurance provides a set amount of money to specified beneficiaries upon the death of the individual who is insured. Life insurance can also be used as a means of investment or saving. Let's take a look at the various options of life insurance and what type of protection they offer to your family.

The two most common types of life insurance are term and whole life. Think of these types of life insurance as the difference between renting and owning a home. Term life insurance provides basic coverage in the event of death, while whole life insurance accrues equity that can be used for other purposes or passed on to your heirs.

With term life insurance you purchase a policy for a set period of time. Payments are paid for the term of the policy, which is generally one to 20 years, and are paid monthly, quarterly, semi-annually, or annually. You can select the amount of the death benefit to be paid to your beneficiaries upon your death. The cost of the policy will depend upon the amount of your death benefit. For instance, your premium will be cost less if you have a $20,000 death benefit vs. $100,000 death benefit.

Whole life insurance provides a basic death benefit, but also builds up what is referred to as "cash value". Basically, this is a savings feature that you can withdraw or borrow against. When you pay your premium, a portion of the money goes toward the death benefit and some goes into the cash value account. Whole life insurance policies also pay dividends or interest that can make the cash value grow over the years.

The downside to whole life insurance is that in order to obtain a policy that offers the same death benefit of term life insurance, your premium is going to be much higher. The plus side is that while the monthly payments are higher, with each payment your policy accumulates a cash value which is tax deferred.