Understanding Life Insurance: Purpose and Basics

Life insurance is a contract between an insured person and an insurance company. In exchange for paying monthly or annual premiums, the insurance company promises to provide a death benefit to beneficiaries if the insured person dies. The main purpose of life insurance is to replace the income of the insured person to ensure financial stability for their dependents. Various types of life insurance policies exist, including term life insurance, whole life insurance, and indexed universal life insurance. Term life insurance provides coverage for a specified term with fixed premiums, while whole life insurance provides lifelong coverage and a cash value component. Indexed universal life insurance ties the cash value to a stock market index. It is important to carefully consider the purpose of life insurance and choose the most appropriate policy based on individual financial goals and needs. It is recommended to follow financial experts' advice like Dave Ramsey, who generally recommend term life insurance for most individuals to replace income if they die.