Life Insurance 101: A Quick Guide
Life insurance is a foundational tool for financial resilience. Whether it’s helping families keep their homes and pay for education after the loss of a loved one or providing valuable support for small business owners, it’s a key component of long-term financial success.
In this life insurance overview, we’ll tackle some common questions to help you begin (or continue) your life insurance journey.
Why is life insurance a good idea?
Life insurance can be a safety net for you and your family in case of an unforeseen life event. It provides financial security when you are no longer around to support them. If you’re interested in learning more about what you should know about buying life insurance, click here.
What types of life insurance are there?
There are two basic types of life insurance: permanent and term. Permanent insurance pays beneficiaries regardless of when death occurs; term insurance pays only during a specific period of time.
Term Life Insurance
As its name would suggest, term life insurance provides protection for a specific term, or period of time – often 10, 20 or 30 years. Term life insurance could be a good idea to keep in force until you’ve paid off loans or your children finish school. For example, due to its low cost, it’s also a viable choice for those on a budget or just starting out.
Permanent Life Insurance
As long as its premiums are paid, permanent life insurance provides protection for the entire duration of your life. Beyond coverage length, permanent life insurance also differs from term life in offering the opportunity to build tax-deferred cash value. This allows you to directly benefit from life insurance while still living, utilizing the cash value to cover emergency expenses, supplement retirement income, to buy a home or address other financial needs.
How much coverage do I need?
The American Council of Life Insurers shares several questions to ask when it comes to thinking about how much coverage you need from your life insurance:
- What ongoing expenses will continue when I am gone – such as daycare, rent or a mortgage?
- What long term financial goals do I have to think about – such as college tuition for a child or retirement for my spouse?
You can utilize Life Happens’ free life insurance calculator for an estimate by simply answering a few questions about your personal and financial needs.
How much does life insurance cost?
The short answer: it depends.
The long answer: four main factors are taken into consideration when it comes to insurance rates – your age, your health, the type of policy and how much coverage you want. These all play a role. For instance, generally, the younger and healthier you are, the less you’ll pay. Term life policies also typically cost less than a permanent life insurance policy for young consumers but can be prohibitively expensive at older stages of life.
How do I get life insurance?
You can start your life insurance journey with an insurance agency, brokerage firm, bank or working directly with a life insurance company. When choosing where to buy, seek recommendations from friends,family or trusted neighbors in financial services, and be sure to check the company’s financial strength using rating agencies such as Moody’s, Standard and Poor’s or A.M. Best.
If you are looking for an agent, it is important to get recommendations from trusted sources and confirm they are licensed to sell insurance in your state. Here is a directory of state insurance departments including detailed contact information of key staff for all 50 states, the District of Columbia and Puerto Rico. A good agent will clearly explain policy options and insurance-related matters, listen to your needs and help find suitable and affordable coverage.
When meeting with your agent, be ready to discuss your financial situation including income, financial resources, debts and goals. The agent will assess your policy needs based on the information you provide – answer truthfully, as these details affect your risk evaluation and premium costs! You may also be required to complete a medical exam.
How do I choose what’s right for me?
Life can be unpredictable at times, but securing your future doesn’t have to be. Life insurance isn’t just a policy – it’s a powerful financial tool that ensures you’ll be prepared for anything life throws at you.