Life Insurance

A New Lease On Life

What is Life Insurance

Life insurance is a contract with an insurance company where you make payments over a period of time. In return, the insurance company provides money to your family after you die.

It’s a way to ensure the financial security of your family after your death. Like all other types of insurance, it is a financial tool used to minimize a specific risk—the risk that your family will be left in poverty if you die and are unable to provide for them.

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Four Components

  1. Insured—the person who takes out the insurance policy
  2. Death Benefit—the amount of money the insurance company will pay in the event of the insured’s untimely death
  3. Designated Beneficiary—the person who will benefit from the payout, normally the insured’s spouse or children
  4. Premium—the amount of money that the insured pays monthly to secure a policy


Many different forms of life insurance are available. In general, these can be divided into four categories: Whole Life, Universal Life, Variable Life and Term Life.

Life Insurance Options

Term Life vs Universal Life

One key difference between term life and universal life insurance is that term life is temporary and universal is permanent.

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Do You Need Life Insurance?

Contrary to popular belief, not everyone needs life insurance. If you’re young and don’t have any dependents, you may not need it. However, if you plan on having dependents, it’s a good idea to buy insurance when you’re young to guarantee your insurability. You may also not need life insurance if you’re older with no dependents and have saved enough to provide for yourself and your partner.

How Much Do You Need?

Income Replacement Approach

One way to estimate how much life insurance you need is by calculating the replacement income needed. This takes into consideration your age and your earnings; you start with your age and figure out how many years of income you’d need to replace if you died. It often takes into account income tax as well as inflation. A problem with the income replacement approach is that it’s not very individualized.

Needs-Based Approach

Another way to calculate how much life insurance you need is through the needs-based approach. This is based on replacing the amount your surviving family will need to maintain a certain level of income and lifestyle. Factors include whether your partner will continue or start to work, how many children you have and the cost of educating them, and whether or not you have a mortgage. Although more accurate, the needs-based approach will take more time and reflection to perfect.

Fun Facts:

  • 41% of the U.S. population doesn’t have life insurance.
  • 93% of Americans say that life insurance is something most people need.
  • Life insurers pay out $1.5 billion every day.



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