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What Is Life Insurance?

Life insurance is a contract that provides financial protection for a policyholder's life for a set amount. A policyholder must pay a monthly or annual premium in exchange for coverage.

When the policyholder dies, their named beneficiary is entitled to the contract's value, known as a death benefit.

A death benefit is a tax-free payment that your family or loved ones can use to cover expenses such as a funeral, mortgage payments, college funds, or to supplement the policyholder's lost income.

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    How Much Life Insurance Do I Really Need?

    Find out how much life insurance you need and see which plans will cover your financial responsibilities.

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    What Types of Life Insurance Are There?

    Learn about all the different kinds of life insurance and determine which one is right for you.

What Are the Different Types of Life Insurance?

There are many kinds of life insurance policies available.  Each is designed to meet your financial objectives and protect your loved ones after your death. Term life and permanent life insurance are the two most common types.

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    What Is Term Life Insurance?

    Learn about the different types of term life insurance available and how you can get the best coverage.

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    What Is Permanent Life Insurance? (And Should You Use It?)

    Learn about permanent life insurance and find out if it's right for you with our guide.

Term Life Insurance

The more popular option is term life insurance, which provides simple and affordable coverage for a set period.

The advantage of term life insurance is that you can tailor your coverage length, or "term" to meet your specific financial needs. Term life insurance expires when the term has ended or when you fail to pay your premiums.

You can, for example, match term life insurance to the length of time it takes to pay off a financial obligation, such as a mortgage.

If you die while your policy is still in effect, your beneficiaries can use the death benefit to pay off your loan. 

Here are some examples of term life insurance policies:

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    What Is Renewable Term Life Insurance?

    Everything you need to know about renewable life insurance policies and whether they’re the right option for you.

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    What Is Increasing Term Life Insurance?

    Everything you need to know about increasing term life insurance and whether it is the right option for you.

    Decreasing Term Life Insurance

    Is decreasing term life insurance the right policy option for you and your family? That depends on how you plan to protect your family after your death. Learn more about your options so you can make an informed choice about the type of life insurance you want to buy.

Permanent Life Insurance

Permanent life insurance is a little more complicated than term life, but the main difference is that it lasts your entire life and only expires if the insured fails to pay their premiums.

While permanent life insurance is significantly more expensive than term life insurance, many policies include investment tools, and some allow you to borrow money against your plan. 

  • Whole life insurance is a type of permanent life insurance that builds up cash value over time.

  • Cash value life insurance allows the policyholder to borrow against the policy as a loan or source of cash to pay premiums.

  • Universal life insurance is a type of permanent life insurance with an interest-bearing cash value component. Universal life insurance has flexible premiums that can be adjusted over time and is available with a fixed or increasing death benefit.

  • Indexed Universal Life Insurance is a type of universal life insurance in which the policyholder earns a fixed or equity-indexed rate of return on the cash value component.

  • Variable universal life insurance allows the policyholder to invest the policy's cash value in a separate account. It also has flexible premiums and can have a fixed or increasing death benefit. 

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    Variable Universal Life Insurance: What Is It and Who Should Get It?

    Everything you need to know about variable universal life insurance, what it is, how it works, and what risks it may have.

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    Guide to Cash Value Life Insurance

    Learn about the benefits and drawbacks of cash value life insurance.

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    Can You Borrow Against Life Insurance?

    Everything you need to know about life insurance policy loans and if they are the right option for you.

What Are Life Insurance Riders?

Life insurance riders are options you can use to tailor an insurance plan to your specific coverage requirements.

Most companies offer some common riders that are widely available, but the companies will apply different criteria on what they offer and how much their riders cost.

Common insurance riders include accidental death benefits, accelerated death benefits, and guaranteed insurability riders.

    Life Insurance with Living Benefits

    Some insurance policies allow you to accelerate the death benefit or access your cash value during your lifetime through an option called living benefit riders.

    AD&D vs Life Insurance

    Accidental death and dismemberment insurance is a type of insurance similar to life insurance. It will pay out if you experience a serious accident that results in permanent injury, such as losing a limb, or death. It's a good idea to understand how these two types of insurance overlap and which might be best for you.

How Much Does Life Insurance Cost?

The cost of life insurance is determined by the type of policy, the policy value, and various factors such as age, health, and gender.

Insurers will ask about your medical history, medications, tobacco use, family history, and profession. The majority of plans require a medical exam as well as a health questionnaire.

A 20-year, $500,000 term life insurance policy will probably cost most healthy applicants between $25 and $30 per month.

Rates for cash value life insurance plans, such as whole or universal policies, are typically much higher. Various factors are considered, but it’s generally best to buy these when you're younger and healthier because premiums often rise with age. 

At PolicyScout, we can help you find quotes from top-rated insurance companies. Our licensed agents are here to help you make an informed decision for your family.

What Factors Affect Your Life Insurance Premiums?

The price you pay for life insurance will depend on your:

  • Age - younger people get less expensive rates.

  • Gender - women tend to get better rates than men.

  • Smoking - smoking and tobacco use will significantly impact your premiums.

  • Health - poor health or chronic conditions can affect your premiums or deny you coverage altogether.

  • Lifestyle - some companies want to know if you engage in risky activities, like skydiving.

  • Driving record - good drivers can often get better rates for their responsible driving skills.

    10 Health Conditions That May Affect Your Life Insurance Premiums

    Depending on your individual health profile and your specific life insurance policy, certain underlying health conditions may affect your premium. If you have any of the following health problems or concerns, discuss your options with your physician and financial adviser to determine how it may affect your policy and premiums.

    Family History And Life Insurance Rates

    Most of us arrive at that point in our lives when we have people depending on us. When, if we suddenly left the picture, their needs might not be taken care of. That’s why it’s always a good idea to seek out and obtain life insurance.

    10 High Risk Hobbies That Can Affect Your Life Insurance

    If you are one to partake in some high risk hobbies, such as skydiving, you may want to look into how it can affect your options and cost when it comes to life insurance.

What Are the Best Life Insurance Companies?

We’ve scouted the best insurance companies to save you time and money by providing information to help you make an informed decision.

We spend a lot of time researching multiple life insurance companies and we’ve compiled reports on our findings to help you save time and money. 

Northwestern Mutual Life, State Farm, and Pacific Life are some of our top-rated life insurance companies, but we encourage everyone to shop around to find the best policy for their family's needs. 

Read our review of the top Life Insurance Companies of 2022 ->

How Much Life Insurance Should I Buy?

Here are some tips to consider when choosing on a life insurance plan

1. Determine the amount of coverage you require

Add up all your financial obligations, such as mortgage payments, income replacement, debts, funeral costs, and college funds. As a general rule, most life insurance companies recommend a policy worth ten times your current annual income. 

Learn more about calculating how much coverage you need here ->

2. Prepare for the application 

Determine whether you need to take a medical exam to be eligible for coverage. Generally, the more coverage you want, the more likely you will be required to take a medical exam.

If you must take an exam, answer all the questions truthfully, get plenty of rest, and drink plenty of water in the days leading up to the exam.

Most term life insurance companies do not require a medical exam and will look at your medical history to determine your eligibility.

Learn more about preparing for a life insurance medical exam here ->

3. Shop around and compare your options to find the best plan for you

There is no one-size-fits-all policy, so find a company and plan that align with your financial objectives. Also, take a look at the company's financial ratings. The higher a company's financial rating, the more likely it will pay out on your claim and the less likely to raise premiums. 

Why Do I Need Life Insurance?

Life insurance gives you peace of mind that your spouse, children, family, and loved ones will be financially secure when you die.

Life insurance can help pay off your mortgage and debts, fund your children’s education, or pay for funeral expenses, relieving your family of the financial burden.

Permanent life insurance policies can also assist you in meeting financial goals while you are still alive, such as funding your retirement or college education. 

PolicyScout's experts can help you find the best option for securing your financial future. We have ranked the best life insurance companies, and our agents can assist you in getting a policy today. 

Read our latest review to find the best life insurance providers for 2022 ->

FAQ: Common Life Insurance Questions

How much life insurance do I need?

The amount of life insurance you need depends on a variety of factors. To determine the amount of life insurance, subtract your assets from your long-term financial needs and obligations. The remainder is the amount your life insurance policy would need to cover.

What types of policies are there?

The most common types of life insurance policies are term life insurance, whole life insurance, and universal life insurance. But you can also get other life insurance plans such as final expense insurance.

What is a life insurance premium?

A life insurance premium is a recurring payment to keep your insurance policy active. Your insurance company determines your premium based on several factors and premiums can be paid in monthly, semi-annual, or annual installments. These payments are made for the duration of the policy as specified by your insurance company.

Is a health exam required in order to get life insurance?

Yes, a health exam may be required for the insurance company to determine if you are insurable and to calculate your policy premium. Term life insurance policies do not necessarily require a medical exam.

Who can be a life insurance beneficiary?

A family member, friend, business partner, charitable organization, or a legal entity such as an estate or trust can be the beneficiary of a life insurance policy.
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