Life insurance should be a component of any financial plan. Life insurance protects loved ones against financial hardship should death occur before our financial goals are met. The death benefit paid by the insurance company can help pay medical bills and funeral expenses and provide cash that family members can use to maintain their lifestyle, retire debt, or invest for future needs (for example, children’s education, spouse retirement). Therefore, one of the first steps in developing a financial plan is to purchase adequate life insurance coverage.
Insurance can also serve more immediate purposes, including being a means to meet long- term goals, such as retirement planning. On reaching retirement age, you can receive the cash or surrender value of your life insurance policy and use the proceeds to supplement your retirement lifestyle or for estate planning purposes.
You can choose among several basic life insurance contracts. Term life insurance provides only a death benefit; the premium to purchase the insurance changes every renewal period. Term insurance is the least expensive life insurance to purchase, although the premium will rise as you age to reflect the increased probability of death. Universal and variable life policies, although technically different from each other, are similar in that they each provide both a death benefit and a savings plan to the insured. The premium paid on such policies exceeds the cost to the insurance company of providing the death benefit alone; the excess premium is invested in a number of investment vehicles chosen by the insured. The policy’s cash value grows over time, based on the size of the excess premium and on the performance of the underlying investment funds. Insurance companies may restrict the ability to withdraw funds from these policies before the policyholder reaches a certain age.
Insurance coverage also provides protection against other uncertainties. Health insurance helps to pay medical bills. Disability insurance provides continuing income should you become unable to work. Automobile and home (or rental) insurances provide protection against accidents and damage to cars or residences.
Although nobody ever expects to use his or her insurance coverage, a first step in a sound financial plan is to have adequate coverage “just in case.” Lack of insurance coverage can ruin the best-planned investment program.

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