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An insurance policy is a contract between you and an insurance company wherein you pay a premium (a fixed amount that is paid, usually per month), and in exchange, the company promises to pay for specifically named losses in the event they should occur. It is financially responsible to insure your household in several different areas; I have outlined some of them on the following pages.

Life Insurance

A life insurance policy is important for managing personal risk. For instance, if you die and your household is negatively affected by the loss of income, your spouse and dependents, including animals, will be cared for. Ideally, you would want your spouse to be able to pay the mortgage, household bills, invest for retirement, and maintain a lifestyle close to what he or she currently enjoys. Life insurance can also provide benefits during your lifetime—some policies are designed to help you finance your retirement or a child’s education through cash value^♦ build up.

There are two types of life insurance policies—term and whole life (cash value insurance).