Life insurance basics and the personal insurance planning process

What life insurance protects

Life insurance helps meet the financial consequences of an insured person's death. The death benefit can replace family income, pay debts and final expenses, fund education, or support a legacy. It can also replace unpaid caregiving services. A person without wages may still create a substantial financial loss for survivors.

The insured is the person whose life is covered. The policyowner holds the contractual rights, such as naming a beneficiary, subject to policy terms. The beneficiary is the designated recipient of the death benefit. One person can occupy more than one role, but the roles are distinct. Premiums are payments that maintain coverage according to the contract.

Plan before choosing a product

Start by establishing the client's goals and gathering facts: dependents, income, expenses, debts, savings, existing coverage, and the length of time support is needed. Include the value of household services and the client's ability to sustain premiums.

A needs analysis estimates immediate expenses and future support needs, then subtracts resources actually available for those purposes. If total needs are $700,000 and available assets and existing insurance total $250,000, the additional coverage gap is $450,000. Avoid counting the same resource twice or counting assets reserved for another essential goal.

The human life value approach instead estimates the present value of future economic contributions to dependents. It adjusts earnings for amounts not available to survivors and discounts future contributions to today's value. A salary multiple is a rough shortcut, not a full needs analysis.

Match and maintain the plan

Match coverage duration, amount, and premium commitment to the need. Term insurance covers a specified period and generally has no cash value. Permanent life insurance is designed for lifelong protection when its funding and contract requirements are met, and may build cash value. Cash value is distinct from the death benefit; do not assume beneficiaries receive both as separate amounts. Product guarantees, costs, and limitations depend on the contract.

Explain the recommendation, confirm affordability, and implement through an accurate application and review of the issued coverage and beneficiary designations. Revisit the plan periodically and after marriage, divorce, a birth, a death, a job change, or a major debt change. Planning is a cycle: identify the need, measure the gap, select coverage, implement, and review.