Life insurance is a unique asset, which is used to solve some of life's perplexing financial problems due to its potentially high yield and its tax-favored benefits.

Life insurance can be used to:
Create an estate. Where time or other circumstances have kept the state owner from accumulating sufficient assets to care for his or her loved ones; life insurance can create an instant estate.

Pay death taxes and other estate settlement costs. These costs can vary from a low percentage of three to four percent to over 50% of the estate.

Fund a business transfer. Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance the transaction.

Pay off home mortgage. Many people would like to pass the family residence to their spouse or children free of any mortgage. Often a term policy is used, which has some significant advantages to bank sold products.

Protect a business from the loss of a key employee. Key employees are difficult to attract and retain. Their untimely death may case a severe financial strain on the business.

Replace a charitable gift. Charitable Remainder Trusts provide tax benefits and life insurance can replace the value of the donated asset. Policies can also be paid directly to a charity.

Guarantee loans. Personal or business loans can be paid of with insurance proceeds.

Equalize inheritances. When the family business or farm passes to children who are active in it, life insurance can give an equal amount to the other children.

How much life insurance should an individual own?

Rough "rules of thumb" suggest an amount of life insurance equal to 6 to 8 times annual earnings; However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed. Important factors include:

Income sources (and amounts) other than salary/earnings,

whether or not the individual is married and, if so, what the spouse's earning capacity,

the number of individuals who are financially dependant on the insured,

the amount of death benefits payable from government plans and from an employer-sponsored life insurance plan, whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc. It is recommended that the person's insurance adviser be contacted for a precise calculation of how much life insurance is needed.

Types of Life Insurance :

Term:

You purchase a policy for a specified period of time (term) and pay a given premium. After the term, you renew your policy with an adjusted premium appropriate premium, depending upon your health and age. If you miss a payment, it may automatically be cancelled. Your policy is paid out only upon death within duration of the term. The Types of Life Insurance policies specified period of time can range from annual to 5, 10, 15, 20, or 30 year terms

Permanent :
This life insurance generally has a "level" premium: it remains constant throughout the duration of the policy and usually thereafter as well. There are several different types of permanent insurance with different traits.
Ordinary or whole: your premiums usually remain stable and must be paid periodically during the policy's duration. Much like term, you have a pre-determined death benefit; however, your premiums are invested on behalf of the policy, providing a guaranteed cash build-up. Later, this cash value may then be applied towards the premium itself (in effect paying for itself). You can also use the cash value as collateral and borrow it (i.e. borrowing against a house mortgage).

Universal or Adjustable: basically, you will have cheaper premiums than you would with ordinary/whole life insurance and still keep most of the same benefits; however, the cash value build-up is not guaranteed and depends heavily on your invested premiums' performance. Bottom line: cheaper rates but less certainty about any extra cash.