The most important reason to buy life insurance is to protect your family by making sure they have enough money if something happens to you. You are buying the future financial security and piece of mind of your family or business.

Life insurance policies receive favorable tax treatment. The proceeds payable at your death, generally will be income tax-free to your beneficiaries.

Many financial experts consider life insurance to be the cornerstone of sound financial planning. So if you are interested in estate planning, cash accumulation, wealth transfer, and estate tax liquidity, life insurance can also help you achieve these goals.

The main reasons for which life insurance is purchased include the following:

• Income replacement - For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
  
  
• Pay outstanding debts and long-term obligations - Consider life insurance so that your loved ones have the money to offset burial costs, credit card debts and medical expenses not covered by health insurance. In addition, life insurance can be used to pay off the mortgage, supplement retirement savings and help pay college tuition.
  
  
• Estate planning - The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.
  
  
• Charitable contributions - If you have a favorite charity, you can designate some of the proceeds from your life insurance to go to this organization.

There are two main types of life insurance on the market today: Term life insurance and Permanent life insurance.


Term Life Insurance - life coverage only

Term Insurance is the simplest form of life insurance. It provides financial protection for a specific time, usually from one to 30 years. Term life insurance policies are relatively inexpensive and are well suited for goals, such as insurance protection during the child-raising years or while paying off a mortgage. They provide a death benefit, but do not offer cash savings.

Purchasing term insurance is like renting a home. It is a short-term solution. Monthly costs are usually lower, but you will not be building equity. Just as many people rent (while saving to buy a home), individuals who need insurance protection now, but have limited resources, may purchase term coverage and then switch to permanent protection. Others may view term insurance as a cost-effective way to protect their family and still have money to put into other investments.


Permanent Life Insurance - combines a term policy with an investment component

If you are looking to have a policy for the rest of your life, or have investment goals, permanent life insurance is a better fit.

Permanent insurance provides long-term financial protection. Permanent life insurance policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher. This type of life insurance is good for long-range financial goals. The investment could be in bonds and money-market instruments or stocks.

Purchasing permanent life insurance is like buying a home instead of renting. You are taking care of long-term housing needs with a long-term solution. Your monthly costs may be higher than if you rent, but your payments will build equity over time. If you purchase permanent insurance, your premiums will pay a death benefit and may also build cash value that can be accessed in the future.

The three most common types of permanent life insurance are traditional whole life (ordinary life) policies, universal and variable.

• A.M. Best - Insurance Information Resource
  
• American Insurance Association (AIA)
  
• American Risk and Insurance Association (ARIA)
  
• Coalition Against Insurance Fraud
  
• FirstGov for Consumers
  
• Insurance Information Institute (III)
  
• National Association of Insurance Commissioners (NAIC)
  
• National Insurance Crime Bureau (NICB)