What is Life Insurance?
A life insurance policy is a contract with an insurance company. In exchange for paying premiums on a policy, the insurance company provides a lump-sum payment (far in excess of what you paid in), known as a death benefit, to beneficiaries upon the insured’s death.
For hundreds of years, life insurance has “saved the day” by replacing the income that otherwise would have been lost after the death of a loved one. With life insurance, families get time. Time to deal with their loss, time to stay in the neighborhood, time to finish school. Without it, financial devastation can set in. And in most cases, very, very quickly.
These days, life insurance comes in many shapes and sizes – and that’s a good thing. No matter what your specific lifestyle, health and goals are, it’s very likely that you’ll be able to find a plan that suits your needs.
But which type of is right for YOU?
To help determine which type of policy is right for you, here are some common questions to ask:
- How much coverage do I need?
- Do I need temporary or permanent coverage?
- How much life insurance can I afford?
- Do I need additional coverage if I get disabled?
- Can I adjust my policy down the road if my needs change?
Below is a short video that describes the basic types of life insurance in the marketplace.
Why is Life Insurance Important?
NO product can protect families quite like life insurance. It turns pennies into dollars when your loved ones need it the most.
If you DIED suddenly, the results could be devastating for your family. Life insurance could help your family stay in their home, pay bills, and even send your kids to college.
And if you should suddenly suffer a serious ILLNESS, with certain riders (additional benefits) your policy can offer financial support at a critical time.
Life insurance can also help your family pay off outstanding financial obligations left behind after your passing.
You’ve worked hard all your life to provide for your family. Shouldn’t they be financially protected after you’re gone?
Finally, life insurance can also be used as a financial resource, to enhance your asset portfolio. It can also help boost your credit, and perhaps help you get a loan.
Types of Life Insurance
Term Life Insurance
Term Life Insurance is designed to cover you for a set period of time, typically 10, 15, 20, 25, 30 or 35 years. During the duration of that term, your premiums will remain unchanged.
However, once the term of your policy ends, some insurance companies will renew it, but the premiums will typically go through the roof. At that point, most people simply drop the coverage.
Term Life Insurance comes in four types:
- Guaranteed Level – Basic form of term life. Premiums jump after term expires.
- Return of Premium (ROP) – Returns 100% of your paid premiums at end of the level term period (usually purchased in 30-year term).
- Annually Renewable – Premiums rise each year of term.
- Decreasing (or Mortgage Life Insurance) – Death benefit decreases over life of term.
No Medical Exam Insurance
No Medical Exam Insurance doesn’t require a medical exam, like traditional life insurance. To qualify, all you have to do is answer a few health questions. This type of coverage is becoming more common as of late, and coverage can be available up to $1 million at some companies. Because there is no exam, the policy may cost a bit more that traditional underwritten and fully examined policies, but the entire process is fast and hassle-free – sometimes in less than a week (from the time the application is submitted).
Universal Life Insurance
Universal Life Insurance is a type of Permanent life insurance that offers permanent coverage with a certain amount of built-in flexibility. With this type of policy, you can change your premiums and death benefits, to adjust to the changes in your life and goals.
This type of policy is typically less expensive than Whole Life Insurance, and can be structured to deliver level premiums and guaranteed death benefit…for life.
Whole Life Insurance
Whole Life Insurance is the “Rolls-Royce” of permanent life insurance. It generally offers fixed premiums, guaranteed death benefits, and is designed to build tax-deferred cash value. This type of life insurance is guaranteed to remain in force for the life of the policy (providing you pay your premiums).
Whole Life Insurance is more expensive than a Term Life policy. But it costs more…because it does more.
Final Expense Insurance
Typically, Final Expense Insurance is a small permanent life policy. While ordinary Permanent Life insurance is typically purchased in much larger benefit amounts (i.e. six-figures or more), a Final Expense policy tends to be issued in face amounts of $2,000 to $50,000 (these amounts vary, depending on the insurer). In short, a Final Expense policy is a unique type of insurance, designed for a very specific purpose – to cover the typical cost incurred when a loved one passes away.
Guaranteed Issue Life Insurance
Guaranteed Issue Life Insurance (also called Final Expense or Burial Insurance) is a type of permanent coverage that’s specifically designed help pay for funeral expenses (funeral service, burial, etc.). Like its name, it is guaranteed, so you cannot be turned down for any reason. This type of coverage is generally limited to values of under $20,000, and comes with no medical exam or health questions. This coverage is guaranteed for life, regardless of future changes to your age, health or occupation (as long as your pay your premiums on time). Most guaranteed issue plans have what’s referred to as a two-year “graded” benefit which states that during the first two years, if you die, you only get back your premiums plus a small amount of interest. After the two years, the coverage becomes ordinary life coverage and the full death benefit would be paid to your beneficiaries upon your death.
Survivorship / Second-to-Die Life Insurance
Survivorship / Second-to-Die Life Life Insurance covers two individuals (usually a married couple), and pays it’s death benefit after the passing of the second policy holder.
This type of policy is less expensive than purchasing two individual life policies. Since the mid-1980s, Second-to-Die Life Insurance has become popular with wealthy couples as a method of offsetting their estate tax liabilities, or for creating larger legacies for a very small premium.
Child Life Insurance
Child (Children’s) life insurance is a type of permanent life insurance that insures the life of a minor. Typically, this kind of policy is purchased to protect a family from the unexpected financial costs associated with the death of a child, such as funeral, burial, and outstanding medical bills.
This affordable coverage is guaranteed for the life of the child. Premiums can be designed to remain level for life, or the policy can be paid off over a shorter period of time (such as 10 years), or in a single payment that pays off the entire policy.
There are many benefits to acquiring life insurance on children, when they are young and healthy. Some companies offer the child the option to acquire more coverage when they become adults, without any health questions…a privilege that could turn out to be very valuable if the child’s health were to change down the road.
Child life insurance also builds cash value over time. And children are generally not required to go through a medical exam, like most adults who apply for permanent life insurance.
Accidental Death Insurance
An Accidental Death is defined as a death caused by an unforeseen circumstance or accident, and not the result of a recurring physical or medical condition. In other words, death must truly be accidental. (Death by suicide, war, drug overdose, and a few other exclusions apply.)
This type of insurance will pay a beneficiary the policy’s face amount (or death benefit) only if the insured should die suddenly (and accidentally).
Life Insurance Riders
A Life Insurance Rider (also known as an endorsement) is an addition to an existing life insurance policy. An insurance rider typically expands the benefits provided in the original policy, allowing you to better customize your coverage and add more flexibility to your policy.
As an add-on to your main policy, this type of additional (or supplemental) insurance offers a variety of functions. This additional coverage can be used for sudden and special challenges (such as expensive health events, like nursing care).
AccuQuote only represents carriers that are highly rated by A.M. Best, the nation’s most respected life insurance company rating service. These highly-rated, brand-name insurance companies are audited annually by state insurance departments, and are required by law to hold assets in reserve that are specifically allocated to pay claims and other policy benefits.
A promise is only as good as the person (or business) that makes it. That’s why we only work with the best.
For more information, you can visit our Life Insurance Companies You Know and Trust page.
Life Insurance Underwriting
The underwriting process (or risk evaluation process) is an essential part of any insurance application. When you apply for a life insurance policy, you are essentially asking the insurance company to take on the potential financial risk of possibly paying a death claim on your life. So going through underwriting is a crucial step in determining what level of financial risk on your mortality is prudent and acceptable for the insurance carrier in question, as well as how to price that risk.
Underwriting looks at dozens of different factors regarding your life, and will include (in some cases) taking a medical exam (paid for by the insurance company) as part of this process.
How Much Life Insurance Do I Need?
This is a very common question. Many financial experts suggest that your coverage should be at least 10-20 times your annual salary (especially if you have a young family). But, of course, those numbers are just a guess.
For a truer financial indictor, you should ask yourself this question: “How much money would your family (or other dependents) need if you were to suddenly die?” In other words, if you are the prime breadwinner or staying at home, taking care of the kids, how much would it cost to replace you or your paycheck? How would your loved ones be able to make ends meet without you or your income?
Let’s do a little math. Get out your calculator and let’s run the numbers. Here’s a good starting point: “How much money would it take to support your family until the kids are grown, out of college, and living on their own?” It’s a pretty big number, right?
For more help on calculating what amount of insurance is right for you, please visit our How Much Do I Need? page, or call 800-442-9899 and talk to an AccuQuote agent.
Life Insurance Rates
Your life insurance rates are a function of your Rate Class and are determined by several factors, including your age, overall health, and the size of the death benefit you want. It goes without saying that the younger and healthier you are, the lower your policy’s premium will be.
“Good Health provides the slowest possible rate at which one can die naturally.”
Say you’re a healthy 30-year old male who wants to purchase a $500,000, 30-year level term policy. Your annual premium will be around $486. Now, if that same healthy male waiting another 10 years before buying that same policy, his annual premium would jump to $758. If he waited until age 50 to buy that policy, his rate jumps to $1,905 a year.
In short, the longer you wait, the higher your premiums will be.
Life Insurance Quote
Do YOU have insurance?
You can receive a Free Online Quote using our quote tool. For even faster service, you can speak to one of our agents by calling 800-442-9899. We’ll be happy to answer all your questions.