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Insurance Planning
The basic purpose of insurance is to transfer the risk that one is not willing to take (or is unable to take) to someone (or a company) willing to take the risk in return for compensation. In the case of life insurance, the objective is, first, to protect the family income and net worth in the event of the death of the breadwinner, and second to provide protection to maintain the estate in order that it might pass on to heirs, allowing the continuation of capital from one generation to the other.
The key theme expounded in insurance sales is "protection". While this is certainly the purpose of insurance, emphasizing it also unfortunately induces an attitude of fear. Most insurance is purchased on an emotional rather than a factual basis. This attitude then leads to attempts to provide enough insurance to protect against any unknown. For the christian, this often leads to a shifting of trust from God to insurance and to an imbalance between amounts being provided and amounts one can afford.
Under the biblical system, when the father died, the oldest son took the breadwinner's responsibility. You may say that purchasing insurance shows a lack of trust in God to provide. Rather, this is the sound-minded principle being put to use.
How much do you need and how long?
You can determine how much you need by first determining the insurance necessary to meet income goals and then adding to it the amount needed for long-term liquidity needs such as major expenses and estate taxes in order to facilitate the transfer of your assets from one generation to the next without tax erosion.
A key distinction is the need for current provision and long-term provision. A clear delineation can help you decide between term insurance and a more permanent product.
This article is adapted from Master your money textbook
The textbook further discusses the types of insurance eg. Term Life insurance, traditional whole life insurance, Hybrid, Universal Life and Variable Life with Insurance questions and answers.