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Life Insurance 101

Life insurance is one of the most important features of a family's overall financial plan. In fact, purchasing a life insurance policy could be the most important decision you ever make. It is vital to have all of the information necessary to make an informed decision when it comes to making a life insurance purchase.

Life insurance learning center

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Life insurance 101 will provide you with the basics of life insurance to help you get a sense of what it is, who needs it and how much life insurance coverage will adequately protect your family's financial future.

What is life insurance?

Life insurance, in its simplest form, is income replacement. The life insurance policyholder pays a premium (monthly, quarterly, semi-annually or annually) in return for a life insurance company's promise to pay the death benefit, or face amount, to the named beneficiary.

The value of a life insurance policy is the peace of mind it provides; knowing that if you died today, your surviving loved ones would be taken care of financially.

Who needs it?

If someone depends on you financially, you need life insurance. Find your particular situation below to find out how life insurance fits into your overall financial plan.

Married with no Children

Married couples share financial obligations. That's why it's important for each spouse to have their own life insurance policy. In the event of a spouse's death, a life insurance policy would allow the surviving spouse to cover shared expenses. In addition, if you're a married couple planning on having children, it's a good idea to buy the life insurance policy before becoming pregnant because health complications can affect your life insurance rate.

 

Married with Children

It's not only important that your spouse is protected, but it's important that your children will be able to continue living the lifestyle they're used to. Consider their financial needs, such as living expenses, college tuition and marriage.

 

Single Parent

Single parents serve as the primary caregiver, breadwinner, cook, chauffer, entertainer and more. With so much responsibility and no spouse to share it with, there's no question single parents need life insurance.

 

Stay-at-Home Parent

Stay-at-home parents make very large financial contributions to their families. For example, things like childcare, transportation, cleaning, cooking and household management all cost money. If you are a stay-at-home parent, it is important to have a life insurance policy that is sufficient enough to cover the cost of these responsibilities if you are no longer around.

 

Retired

If you have an estate, your heirs could be hit with a large estate tax payment after you die. The proceeds of a life insurance policy are usually paid out immediately, allowing your heirs to cover the estate tax and other final expenses.

 

Small Business Owner

Life insurance can protect your small business. If you, a partner or other key employee died, a life insurance policy would cover the business' financial loss. Life insurance for businesses can be structured to fund a "buy-sell" agreement, where the surviving partners would have the funds to buy the company interests at a previously agreed upon price, or "key person insurance," which provides the owners with the proceeds needed to hire a replacement.

 

Single

Single people need life insurance too. For example, some singles provide financial assistance for ill parents, and some people are carrying significant debt, like student loans, that they wouldn't want to leave their co-signers with. But also consider insurability. Buying a life insurance policy while you're young and healthy will guarantee your insurability for life.

How much do I need?

Life insurance 101 experts suggest buying a life insurance policy that is 10 to 20 times your annual salary, but your annual salary isn't the only important factor in determining your life insurance needs. You need to consider how much money will be enough to protect your family when you're no longer around.

Ask yourself the following two questions.

  1. How much money will my family need to fund final expenses, such as the cost of my funeral and outstanding debts?

  2. How much money will my family need to continue living the lifestyle they're used to, pay off the mortgage and fund future expenses?

Our term life insurance calculator can help you answer these questions and determine how much life insurance you need.

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