Life insurance provides a tax-free lump sum of money, called the death benefit, to a designated beneficiary after your death. You choose the type of policy you need, the number of years you want it to last, and the coverage amount, and make premium payments to the insurance company. If you die while your life insurance policy is active, your beneficiaries can file a claim, and the death benefit will be paid out to them.
Life insurance coverage offers affordable financial protection — and invaluable peace of mind — to people whose friends or family members rely on them. The death benefit can be used to pay expenses like a mortgage, utility and grocery bills, children's college costs, final funeral arrangements, long-term care, and more.
Learning about life insurance can be overwhelming – but Insure Quality is here to help. We’ll help you figure out what to keep in mind when considering life insurance and walk you through the process of shopping for a policy to make sure you get life insurance right.
Do I need life insurance?
A 2020 report by the U.S. Federal Reserve Board showed that nearly 40% of adults would have trouble paying a $400 emergency expense, and 12% "would be unable to pay the expense by any means."
Does anyone depend on your income?
If the answer is yes, then you probably need life insurance.
Common life insurance policyholders:
Spouses: Marriage complicates finances, and you’ll feel better knowing your significant other has a safety net for any shared debt or future financial plans.
Parents: Whether you’re paying for diapers or college tuition, kids are expensive. A life insurance plan ensures they’re taken care of from cradle to college.
Homeowners: Mortgages are the biggest, longest-lasting debt most people will take on. A good rule of thumb is to have a life insurance policy that lasts as long as your mortgage. It's not uncommon for a policy to last 20 or 30 years.
Business Owners: A smart business owner will have an insurance policy so their partners can keep the company going even after they’re gone.
Students: Did you know that your parents may be on the hook for your debt if they co-signed your student loans? Anyone with co-signed debt should consider life insurance, even if you’re young.
Types of life insurance
When shopping for life insurance, most people decide between two types of policies: term life insurance and whole life insurance.
Term life insurance is the most common type; it expires after a set period of time (the term), providing protection when you need it and ending when you’ve paid off your major financial obligations like a mortgage, college tuition, and raising kids. Term life is popular because it’s straightforward and much cheaper than other types.
Whole life insurance is a type of permanent life insurance. That means it doesn’t expire; it also has a cash value component, which acts similar to an investment account that you can borrow from.
However, this component comes at a cost, and whole life insurance is substantially more expensive than term life. This can be helpful for some complex financial situations, but most people won’t benefit from the extra cost. Other types of permanent life insurance include:
Universal life insurance
Variable life insurance
Final expense life insurance
The type of life insurance is a major factor in determining how much your policy costs, how long it lasts, and which company you should go with, so it’s important to understand which is right for you and your family.
Life insurance rates
A major part of choosing which type of life insurance you need is the monthly premium rate you’ll pay.
So how much does life insurance cost? That depends on several factors, including:
The policy details: The type of policy you choose, along with the term length and coverage amount, influences the cost of your policy
Your health: Life insurance is all about risk, so the healthier you are, the cheaper your policy will be. If possible, buy life insurance when you’re feeling your healthiest.
Your age: The cost of a policy increases at a rate of 8-10% each year you put off buying one.
Your hobbies: Dangerous hobbies, like skydiving and scuba diving, may raise your rates.
Your gender: In general, men pay more than women for comparable policies.
While life insurance premiums – the amount you pay to keep your policy active – vary from person to person, in general, whole life insurance is more expensive than term life, by an average of 10-15x older shoppers, less-healthy applicants, and men also tend to pay more.