Clarity on Life Insurance

Croft Enterprises

Life Insurance

Clarity on Life Insurance

Life Insurance. What is it? What types are there? How can it help me? Life insurance is one of the major pillars of personal finance, according to Forbes Magazine. It is nearly vital for most individuals, and while it can be applicable universally, most still are unclear of its benefits.

What Is It?

Life insurance is a contract between an individual and a life insurance company to transfer the risk of death to the insurance in exchange for a specified amount of premium. An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The official definition of life insurance is, “insurance that pays out a sum of money either on the death of the insured person or after a set period.” There are three main components of life  insurance contracts: a death benefit, premium payment and, a cash value account (this is only applicable for permanent life insurance plans).

How Can It Help Me?

Will provide financial stability to a spouse, child or any dependents. It is a risk management tool that, in certain cases, can be very affordable. Furthermore, it helps maintain a standard of living for your dependents or any survivors.

Types of Life Insurance

The topic of life insurance can be a complicated and confusing one that many individuals don’t understand. To break it down, there are two different types of life insurance, term life insurance and permanent life insurance.

Term: there for a period of time (i.e. 10 years, 20 years, 30 years, etc.)

–       Temporary in coverage

–       Similar to “renting an apartment”

–       No equity

–       Lower cash disbursement

Permanent: includes Whole Life Insurance, Universal Life Insurance (UL), Variable Universal Life Insurance (VUL), Equity Indexed Life Insurance (EIUL).

–       Lasts an entire lifetime

–       Similar to “owning a home”

–       Builds EQUITY

–       Higher cash disbursement

When considering the purchase of life Insurance, many economists and financial advisors suggest that you should own 8-10 times your annual income.

Situational Examples

1.     If an individual’s income is $100,000 annually, he/she has no children, the person’s life insurance policy is suggested to be around $800,000 of life insurance.

2.     If an individual has 2 children, has some student loan debt, and a mortgage, that individual should have $1,000,000 of life insurance.

Disclaimer: These are simply examples and we are not soliciting advice to any individual.



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