First of all, life insurance is not really an investment. It’s insurance like any other insurance that pays in case of an unfortunate economic event, in this case, the financial losses that occur when one passes away.

There are obviously certain financial aspects to life insurance. It has to do with money. It has to do with financial planning for one’s family and future and in some cases there is a cash buildup with life insurance policies such as whole life or universal life.

So, is life insurance a “good investment?” Like most financial instruments, it depends. What one can say, almost without a doubt, is that if there are people who depend on you and your income and your cash flow and that would stop in the event of your death, then life insurance becomes a financial necessity. In the case of children being taken care of financially, then life insurance benefits paid to a surviving family is a very “good investment” indeed.

One can look at life insurance from a purely economic point of view, taking the emotion out of it. There’s a stream of income from a breadwinner, let’s say $100,000 per year. An event occurs that stops that income. Adequate insurance comes in to replace that income. How much? Simply stated; cash enough to equal the present value of future income. It’s an economic decision combined with a caring decision.

How do you calculate “present value?” If you are adept with a financial calculator you can do it quickly by taking income flow and putting an interest rate to it. To make it simpler though, if one had 15 to 20 times one’s income in life insurance they would likely be getting an adequate amount.

Which type of life insurance is another matter. Let’s make that simple (possibly oversimplified). Term life insurance is insurance for a period of time. After that period of time it ends or jumps in price based on the new, attained age. It’s less expensive at first because of the fact that the insurance company’s risk is limited to the period of time.

Permanent life insurance such as whole life or universal life is built to last a lifetime. Since the insurance company will pay a claim and premiums do not increase (guaranteed on whole life and some universal life policies) the premiums are substantially higher at first but are built not to increase. Also, a portion of the higher charge is held in a reserve that one can use as collateral for a loan or receives if the policy is dropped. To learn more about types of life insurance one can go to the lifeinsure.com web site.

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