It recently occurred to me that I've been writing several articles about life insurance, individual, group, family, and so on, but I haven't taken the time to actually explain the basics of life insurance itself. I'm going to do that in this article.

Life insurance policies pay a death benefit, which is known as the "face value" to the beneficiary of the policy. The face value is nothing more than the amount of the policy. Example, a $100,000 life insurance policy would have a face value of $100,000, a $50,000 life insurance policy would have a face value of $50,000, etc. that's all there is to it.

Besides the insurance company, there are only three other people normally involved with any one life insurance policy. These three people are the owner, the insured and the beneficiary. Let's take a look at each one of these people.

The owner of the policy is the person who purchased the policy and is making the premium payments. The owner of the policy makes all of the decisions regarding the policy, including who is going to be insured and who the beneficiary is.

The insured person is exactly that, the person that the insurance was bought for. In the event that something happened to the person that is insured by the policy, a payment would be made to the beneficiary.

The beneficiary is the person that receives payment in the event that anything happens to the insured. There can be more than one beneficiary for each insurance policy. Example, let's say that one of your parents has a life insurance policy and they pass away suddenly. If you have brothers and sisters there is a good chance that your parents named all of you as beneficiaries of the policy.

Example, let's say that you have one brother and one sister and the policy was for $60,000 even. In this case, you would each receive $20,000. If you're an only child you'd receive it all.

There are only three basic types of life insurance. These are Whole Life, Endowment and Term. Although there are different variations of insurance policies, these are the three that you really need to focus on if you're considering getting a life insurance policy for yourself.

Estate planning is about making sure you take care of your spouse and family should you pass away. Life insurance plays a critical role in assuring their comfort.

Most people view life insurance as a one dimensional tool. They know and understand its value as a means of replacing the lost income of the policy holder for a certain length of time after his death. It is a means of protecting the family and dependents from financial disaster in the case of untimely and unexpected death. Fewer people have learned of the use of Life Insurance as an investment instrument that is capable of supplementing other elements of a comprehensive retirement plan.

Even fewer people fully understand the value of life insurance in estate planning. Life Insurance is a tool that can be used to transfer wealth from one generation to the other in a manner that minimizes the amount of that wealth lost to taxes. There are several ways that this can be done and it makes your Life Insurance agent a partner in the estate planning process in the same manner he is a partner in your personal finance planning and investment planning.

The basic death benefit from an insurance policy often makes up a large portion of the estate of the deceased person. This is why the taxation implications and the selection of beneficiaries is an important element. It also illustrates how all of the various financial planning areas must be coordinated. The basic life insurance policy will play a role in both financial planning and estate planning. It also might very well figure in retirement planning.

One example of how life insurance can play a creative roll in the transfer of wealth while minimizing taxation is the use of the $10,000 tax free yearly gift allowance. It is possible to make a yearly tax free gift to a child with the intention, but not the requirement, that the money is used to pay a premium on a life insurance policy. The life insurance policy is just about the only investment vehicle where the full amount of the return is available from the first day of the investment. You can imagine how much life insurance can be purchased for a premium of $10,000 yearly. The full amount of this policy represents wealth that is protected from taxation.

There is no question that your life insurance agent can be a trusted partner in the estate planning process. The ability to transfer control of your policy to a Living Trust and the investment and taxation implications for your beneficiaries are just two examples of the kinds of estate planning questions that you will need the guidance and advice of an insurance professional to answer.