Have a Few Questions About Life Insurance?
What is life insurance & how does it work?
Life insurance is a contractual agreement between you and an insurance company. You, as the policyholder, pay scheduled premiums, and in return your designated beneficiary is guaranteed to receive a lump sum of money, or death benefit, upon your death. A life insurance policy can provide financial security for your loved ones in case you are not alive to provide for their ongoing needs. Buying a life insurance policy can help give you greater peace of mind that your family could have financial protection when you are gone. Life Insurance 101 >
What does life insurance cover?
Life insurance provides a cash payout, or death benefit, to your beneficiary when you die. This money can be used for a variety of purposes, depending on the specific needs of your loved ones. The life insurance death benefit can be used to replace lost income for your family (especially if you were the primary wage-earner), to cover final expenses like funeral costs and medical bills, to pay the mortgage or credit card bills, fund a college education or pay for your family’s daily living expenses like groceries and gas.
Your need for life insurance depends on where you are in your life. Marriage, parenthood, home ownership and retirement are important milestones for evaluating your need for life insurance. If you have loved ones who are financially dependent on you, life insurance can provide coverage to help protect their financial well-being in the event of your death. The death benefit paid to your beneficiary could be used to help pay for final expenses, mortgage payments, college tuition and outstanding credit card debt. Life insurance can also be used to transfer wealth for an inheritance and to leave a financial legacy to your favorite charity. Do You Need Life Insurance? >
What are the different types of life insurance?
There are three different types of life insurance: term, whole and universal, each featuring various benefits. Term life insurance offers you temporary coverage, a death benefit with no cash value and level premiums for a specific number of years — usually 10, 15, 20 or 30 — after which time your coverage ends. Whole life insurance provides permanent coverage and features accumulating cash value from which you can borrow, although doing so may incur surrender charges and decrease your death benefit. Universal life insurance features permanent coverage with a policy cash value and the flexibility to adjust your premium payments and death benefit amount once the policy is in force. Types of Life Insurance >
How much life insurance do you need?
The amount of life insurance you need is related to how many dependents you have, your overall debt (including mortgages and loans), how much money your loved ones would need after you’re gone and the length of time they would need financial support. Multiplying your annual salary by the number of years your family would need to replace your lost income — and accounting for additional annual expenses — could be a good starting place. Your stage of life and current and future financial needs (like college tuition) will influence the amount of coverage as well. For example, a married couple in their 30s with three young children may need substantially more life insurance than empty nesters with adult children. How Much Life Insurance Do You Need? >
What is the best life insurance policy?
Figuring out which life insurance policy is best for you depends on your financial goals, life stage and lifestyle. The three types of life insurance — term, whole and universal — offer various features and options that are designed to meet different needs and budgets, depending on your personal situation and long-term financial goals. Some variables to consider are the need for permanent or temporary coverage, the choice between fixed or variable premiums, the option to change the death benefit amount in the future, and the ability to build cash value and borrow against the policy over time. How to Choose the Best Life Insurance for You >
How do you buy life insurance?
The first step in buying life insurance, after assessing your current financial needs and learning about life insurance basics, is to get an online quote or meet with a qualified financial representative. The life insurance application process involves multiple steps and requires you to complete a lifestyle, medical history and health questionnaire. You also may be asked to complete an in-person medical exam (paid for by the insurance company) to access your overall health, either at your home or office. After submitting your first premium with your application, the insurance company will take time to verify your information and assess your coverage, which may be approved as applied for, approved with a different premium or denied. How to Buy Life Insurance >
How much does life insurance cost?
The cost of life insurance depends on a number of factors, including the type of policy and term length (if applicable), coverage amount, as well as the proposed insured person’s age, gender, state of residence, tobacco usage and overall state of health. Misconceptions about the cost of life insurance prevent many from owning a policy. According to the 2019 Insurance Barometer Study by Life Happens and LIMRA, many people estimate the cost of life insurance coverage to be more than three times its actual cost.
Life insurance quotes are determined using actuarial mortality tables, which lists data for life expectancy. Your life expectancy is based on a number of determining factors, including age, gender, general state of health and tobacco use — which are all taken into consideration during the underwriting of a life insurance policy. Because women in the United States generally have a longer life expectancy than men, a woman will usually pay less for life insurance than a man who is the same age, in the same health condition and shares similar risk factors. Waiting longer to buy a policy will usually cost you more because your life expectancy will most likely decrease over time, and your health may decline as well.
What is permanent life insurance?
Permanent life insurance lasts for your entire lifetime, rather than a limited period (which is how term life insurance works). With permanent life insurance, your coverage stays in force as long as you pay your premiums as they are scheduled. Whole life and universal life are types of permanent life insurance. Whole life insurance features level premiums that never increase and an accumulating cash value at a guaranteed fixed rate. Universal life offers you more flexibility but requires more ongoing attention. With universal life, you can change the amount of your premium payments and accumulate cash value based upon market interest rates, which may change over time. Understanding Permanent Life Insurance >
Which is better: term or whole life insurance?
Your personal situation and financial needs are key to answering this. Term life offers you the ability to choose your length of coverage, usually 10, 15, 20 or 30 years — and affordability since temporary coverage for a limited period of time is less expensive than permanent coverage over your entire life. Whole life offers you permanent coverage and a cash value accumulation against which you can borrow money. With these features, whole life premiums are typically higher than term life for the same amount of coverage. Considering your family’s financial needs along with your age, health, current budget and future expenses will help determine which type of insurance is the better option for you. Term vs. Whole Life Insurance >
Can you get life insurance if you have a medical condition?
Applying for life insurance does not guarantee an insurance company will sell you a policy. Your application goes through an underwriting process during which your eligibility for insurance is evaluated, which includes a review of your medical history and a physical exam. Personal health problems can lead to higher premiums or even a complete denial of coverage. Examples of health conditions that may affect your insurance costs and eligibility include cancer, heart disease, diabetes, high blood pressure and being overweight. If you develop serious health issues after getting life insurance coverage, your policy will not be affected. To improve your chances of qualifying for coverage and making your premiums more affordable, it’s advantageous to buy insurance while you’re young and healthy. Health Conditions that May Affect Life Insurance Coverage >
Why is life insurance important?
Life insurance can play an essential role in your overall financial plan. A life insurance policy can help protect your loved ones by providing greater financial stability for their future. Life insurance pays a lump-sum cash payment or death benefit to your designated beneficiary upon your death. This money can help pay for final expenses (including medical and funeral costs), cover lost income, help keep your loved ones in your family home, fund a college education, leave an inheritance for the next generation or serve as a contribution to your favorite charity. Life insurance can offer you more peace of mind knowing your loved ones will have financial support when you are no longer there to provide for them.