A life insurance policy will pay the living after the policyholder has died so in effect, the people protected by a life insurance policy are not the insured, but rather the beneficiaries. Your decisions regarding life insurance will have a profound effect on the lives of your loved ones after you have passed.
For those who are married, supporting a family with children, life insurance is necessary. If the main breadwinner were to die, the survivors would be left to fend for themselves with little or no income. A family faced with such a crisis could become homeless and bankrupt very quickly. Life insurance plans should include provisions for the survivors to carry on their lifestyle if the main income earner of the family dies.
This argument for life insurance should not discount the importance of a non-income earning parent. Raising a family as a stay at home parent is a full time job although it is not compensated with wages. If a death were to happen of one parent in a family, the other parent would then have to earn an income and maintain the household. A properly planned life insurance strategy would provide enough income either to support the family while the parent in charge of maintaining the household continues to do that, or if that parent decided to enter the work force, the proceeds from a life insurance policy could fund things like daycare, or a professional housekeeper.
Life insurance policies can be purchased for children also. The question around this issue is who are the beneficiaries and exactly what purposes will the benefits serve. Children do not produce income that can be replaced, and placing a dollar value on children is unspeakable. These policies generally are generally small and are simply designed to pay for funerals and burials in the event of a child’s death. This small benefit is typically available at a very low cost.
There are two basic types of life insurance policies. Whole life policies maintain a cash value by taking some of the premium dollars and investing them to produce income that remains available to the policyholder. The other type of policy is a term policy that has no cash value. The first can be seen as a kind of income investment, although returns are usually quite small as compared to typical mutual fund type investments. Term policies are often much less expensive. If you are considering the purchase of a life insurance policy as an income investment, be careful to evaluate the expected rate of return as compared to placing that money in other types of security investments, but also compare it to the cost vs. value of a comparably sized term policy.