Life insurance is to financially protect those who have lost a loved one. Losing someone you love is a devastating event alone. However, if many family members depend on that person financially, that makes it even worst.

By purchasing life insurance, individuals can protect their families in advance. They will no longer be worried if their children can afford to attend college later or if their spouse is able to support the entire family by themselves. Life insurance is designed to replace lost wages that a deceased person could  of provided if they were alive.

Who needs life insurance?

An insurance agent make try to tell you that everyone needs life insurance, but we'll tell you the truth. Usually it is those that are currently providing financial support for others, such as children or their spouse that needs life insurance.

Younger, single individuals with no children generally does not need life insurance. The exception is they have parents, siblings, or others that are supported by their current salaries or is expected to be supported by their future salaries.

Older couples whose children are financially independent and have enough saved in their retirement accounts would not need life insurance either, contrary to what any insurance agent would try to tell them.

How large a policy do I need?

There really is no perfect answer since everybody's financial situation would vary. A general rule is usually between 5 to 10 times the current annual income. However that number will vary depending on your current assets, debt, number of children, years left on your mortgage, and other factors.

While a number such as a $500,000 policy might sound like a lot, it sometimes really is not. If you have children that you have to provide for around another 10-15 years and a mortgage with many years left on it, that amount would have to last a long time.

What is the difference between term life and whole life insurance?

Term life insurance provides coverage for a specific number of years. It is useful for those whose responsibilities will diminish or go away after a certain period of time. For example, someone who currently has children in college, whom they expect to be financially independent in a couple more years, and a mortgage with around 7 years left.

A term life policy for 10 years would be sufficient for this individual, since after that time they would not have much financial obligations left.

A whole life policy covers a person's entire life as long as they pay the premiums. The cost of whole life insurance is higher then that of term life but the rates are locked in from the beginning. Whole life also has a savings element to it and builds up an accumulated cash value over time. The accumulated value of a whole life policy can be borrowed against also or cashed out in exchange for giving up the insurance policy.