Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient.

 We at Canada Insurance Plan helps in finding answers to questions like - who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations.

What Kind and How Much?

Finding the middle ground between being "insurance poor" and unprotected requires assessing real needs and choosing products that are affordable. This article introduces different types of insurance products and the role that they can play in a personal financial plan.

Determine if you need life insurance. If no one, such as a spouse or a child, depends on your income, then it's pointless for you to insure yourself. Life insurance is protection against lost income--no more, no less. Similarly, if you are well-off financially, your family may not need an influx of cash when you die.

Calculate how much coverage you'll need. Determine how much your beneficiaries need to live on, and for how long. Losing a loved one is difficult emotionally and financially, and many dependents will want a period in which they won't have to worry about money. While two years is the average cushion, some people may want to make sure their beneficiaries are set for life.                                                                                                                                                                                                         

Choose what type of coverage best meets your needs. Insurance is protection, not an investment. Think of insurance in terms of decreasing responsibility as you get older. When you are younger and have kids and a mortgage, you need protection.                                                                                                                                                         

Term life insurance is the simplest way to go--you pay the premium and are covered for a specific benefit for the period during which you want coverage. When you stop paying, you stop being covered. Term is a much cheaper option in the long run, and you can invest the money you would have otherwise paid for whole life insurance.

Universal life policies allow you to adjust your premiums as well as your death benefit. Variable life lets you choose how to invest the policy's cash value. A portion of what you pay in premiums goes into a cash value, which could increase over time and can be redeemed before your death. Unfortunately, the mortality expense of all cash value policies goes up significantly after age 65, so that you could be in the situation where your payment goes up drastically or your investment account used to pay your premiums quickly dries up. If you die with a large cash value balance, your beneficiary still gets only the face amount, not the face amount plus the cash value.

Whole life insurance has significant drawbacks. First, the premiums are generally far more costly--especially in the early years of the policy, when you're mostly paying commissions rather than building cash value. Second, if you have to cash out the policy early, you may have to pay a surrender charge.