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Life Insurance

You need life insurance to protect your family and loved ones from costs that they may face after your death. Life insurance guarantees a lump-sum payment, also called death benefit, to your named beneficiaries if and when you (the insured) die.

What Is Life Insurance?

After the untimely death of a wage-earner, their family and loved ones may experience severe financial hardship. The sudden loss of income could create ongoing difficulties for the dependents. Final medical bills and burial costs often reach into the tens of thousands of dollars. The proceeds from a life insurance policy can provide ongoing support so that a family can avoid having to move or make other big changes to their lifestyle.

Life insurance is a crucial part of a financial plan for an individual who provides financial stability for others. More than half of Americans own a life insurance policy.

What Does Life Insurance Cover?

Life insurance protect your family against financial loss after your death: your insurance company will pay a lump sum, also called death benefits, to your beneficiaries. The insured person chooses their beneficiaries and names those people in their life insurance documents. Beneficiaries own the proceeds of a life insurance policy and can use them in any way they choose. 

There are a few different types of life insurance. Each has its own purpose.

Term Life

Term life insurance offers temporary financial protection during a set period of time. The policy does not increase in value over time and premiums are not refundable. You can choose the amount of time you want coverage and the amount of money you want your beneficiaries to get upon your death if you die while the policy is in force.

Whole Life

Whole life insurance (sometimes called permanent life insurance) does not have a set term. There are two parts to the policy. The life insurance portion pays beneficiaries a set amount of money upon your death. The savings portion serves as a retirement benefit for the insured person and is accessible after a certain period of time while the insured is still alive.

Within these two categories of life insurance, there are many options for specific types of policies. You can also customize your life insurance policy with life insurance riders to cover specific needs or situations. Before you can choose which life insurance policy works best for your situation, you’ll need to choose whether you want a term or whole life insurance policy.

How Much Does Life Insurance Cost?

One of the main reasons people don’t get life insurance is because they overestimate the cost. The average annual premium for a $250,000 term life insurance for a healthy 30-year-old is just $160 per year. 

In reality, the cost of you life insurance depends on the type of insurance you choose, whether term life or whole life insurance, and the coverage amount you need.

In addition, there are several factors that influence life insurance premiums.

 

What Factors Influence Life Insurance Premiums?

Your Age and Gender

The younger you are, the lower the premiums, as you will end up paying life insurance premiums for a longer time period. Similarly, women, who live longer on average, usually enjoy lower rates.

Your Health Status

The underwriting process usually includes a medical questionnaire and medical exam, which records your detailed health history. Some insurance companies offer “no-exam” policies, but you can expect to pay more.

Your Lifestyle

High-risk activities (e.g. sky diving) or known risky behaviors (e.g. motorcycle riding) will raise your premiums significantly. Your occupation, driving record and smoking habits will also have a big impact.

The type of insurance policy

Permanent or whole life insurance, which comes with a guaranteed death benefits, has considerably more expensive premiums than term life insurance.

The value of the insurance policy

Premiums for a $100,000 policy will be lower than for a $1 million policy. Talk to a life insurance agent to determine the maximum death benefit you can afford.

How premiums are calculated

According to Jack Dolan of the American Council of Life Insurers (ACLI), “Life insurance is a mortality risk assessment. (…) The policy premium is based on the odds of the applicant dying prematurely.”

In general, life insurance applicants in excellent health will pay less for life insurance than those with ongoing or past health challenges. Younger applicants also pay less for life insurance.

Should seniors consider life insurance? Most seniors don’t need life insurance for income replacement, but you might want to have coverage for final expenses or outstanding debts. Indeed, there are viable, affordable options when it comes to life insurance for seniors.

How to determine how much life insurance you need? As a quick estimation, take your current annual income and multiply it by a factor between 10 and 15. For instance, if you earn $50,000/year, you would require about $500,000-750,000 worth of life insurance benefits in the event of death.

How to Buy Life Insurance?

No-Exam Life Insurance

You can purchase life insurance online without undergoing a medical exam: simplified underwriting uses information about your age, health, and other factors to determine your premium.

This type of underwriting typically yields more expensive premiums for younger and healthier people. Yet, about half of Americans prefer simplified underwriting because they don’t have to give blood and urine samples or even talk to a person face-to-face.

Underwriting

Traditional life insurance underwriting takes longer. In most cases, a medical professional visits your home to take your health history and get blood and/or urine samples in person. You may also be able to go through the traditional underwriting process by visiting a doctor in person for the exam.

Whether you choose traditional or simplified underwriting, you’ll answer questions about your age, height, weight, past health issues, ongoing health problems, and family medical history. With simplified underwriting, you may get a quote in just a few minutes. Traditional underwriting could take six weeks to complete.

Your life insurance policy isn’t valid until you complete the underwriting process, designate beneficiaries, and pay your premium.

Buying life insurance doesn’t have to be complicated but requires careful research to determine both the type of insurance you need and the right insurance company for your family. Your agent will be able to help you understand how to buy life insurance and even walk you through the process.

How to Choose the Best Life Insurance Company

There’s more to choosing a life insurance company than getting the lowest possible premium. It’s crucial to choose a life insurance company with a long history of financial stability that also has a reputation for paying claims in a timely manner.

Here are the companies that issued the largest amount of life insurance in the United States during 2019:

Insurance Company Market Share
MetLife Inc.
13%
Prudential Financial Inc.
7.7%
Equitable Holdings
6.3%
New York Life Insurance Group
4.6%
Massachusetts Mutual Life Insurance Co.
4.2%
Lincoln National Corp.
3.9%
Principal Financial Group Inc.
3.7%
American International Group (AIG)
3.5%
Jackson National Life Group
3.2%
Transamerica
3.1%

There are hundreds of reputable life insurance companies issuing policies. Price is important, but initial quotes may not match your final price after underwriting. It’s smart to choose a few well-established life insurance companies and then choose the policy that best meets your needs.

If you want a whole life insurance policy, compare cash value guarantees and return of premium features as well as ongoing premium rates. It’s important for you to know how long the coverage is guaranteed to remain in force at the stated premium. In many cases, whole life insurance prices can rise dramatically over time.

Term life insurance policies are simpler. You need to determine the “term” or the amount of time you want coverage, and the amount of money you want your beneficiaries to receive upon your death. Longer terms and higher payouts typically mean you’ll pay higher premiums.

When you buy a life insurance policy, you enter into a contract with a company that may last decades. They must be able to survive changes in the state of the economy and the markets. The company’s claims-paying ability is rated by Standard & Poor’s, A.M. Best, and Moody’s. Check that rating online as part of your selection criteria to choose the best life insurance company for you and your close relatives.

There are many aspects to choosing life insurance, but you don’t need to become an expert on the subject to make smart decisions about this important topic. Term life insurance is the right choice for the majority of consumers who simply want to offer ongoing financial stability for their loved ones. If you are interested in whole life insurance, it’s a good idea to speak with an expert who can talk to you about your many options.