Insurance is an important part of any comprehensive financial plan. Insurance answers the question, "what if the unthinkable happens?” But too many people avoid it because they see the expense but not the benefit or they simply don't want to think about their own death or the death of a loved one. But insurance is a vital part of any financial plan and should be considered for everyone.

For most people, the best course of action when adding insurance to their portfolio is to ask these two questions:

What is a permanent expense in my life?

What is a temporary expense in my life?

The answer to these questions will help you determine what kind of insurance you need.

For example, funeral expenses are a permanent expense because they are always there. So you'll want to buy a small “Whole Life insurance policy” to cover funeral expenses. (It's called “whole life” because the policy is going to cover you for your whole life… a permanent insurance policy to solve a permanent expense). If you want to leave a legacy for a charitable organization, you may want to take out a whole life policy for that as well.

Your children's college education is a temporary expense, since (hopefully) they will stop going to college at some point, so if you decide to take out a policy to cover their education if you die, the term should end when the youngest child attends college. Another temporary expense is your mortgage. Match the term of your term policy to the time it will take you to pay off your mortgage.

Some other expenses to consider include

The care of an elderly parent is a temporary expense so it is best covered by temporary insurance.

The cost of a car is arguably a permanent expense since you will always have a car and car insurance and perhaps the necessity of buying a new one periodically.

The cost of a young widow to stay at home with the children to raise them is a temporary expense since the children will grow up and be able to support themselves at some point.

Many people avoid thinking about insurance. When they finally do decide to give it some thought, it is such a wide-open industry requiring specially licensed agents to help you that it is difficult to know where to begin. Before contacting an agent, sit down with your loved ones (the ones who will be directly affected by your unfortunate passing) and decide what permanent and what temporary expenses exist in your life.

Jeff Lakie is the founder of Insurance Resources a website providing information on Insurance

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