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When deciding how to narrow down your life insurance needs, start by choosing from its two main types: term life and whole life. Term life covers you for a specified period of five to 30 years or more, depending on the provider. After your coverage expires, you can typically renew or convert your policy to another term. Whole life insurance is a type of permanent policy, providing lifelong coverage and often a cash value component and dividends supported by an investment account.
Easily the most practical and affordable life insurance option, term life insurance offers coverage for a predetermined period of time.
Whole life insurance provides lifelong coverage at a fixed rate, while building in cash value.
Universal life insurance offers both lifelong coverage and an investment component that tracks the major indexes.
This investment focused life insurance policy is for experienced investors looking to grow and use the cash value component of their policy later in life, tax deferred.
Joint life insurance is a single policy, term or whole, that aims to meet the needs of two people, usually married.
This type of insurance provides a necessary income should you become afflicted with a debilitating injury or illness and are unable to work.
Every type of life insurance, explained
Most life insurance providers pay out claims within 60 days, with most states allowing your insurer up to 30 days to investigate your claim, if necessary. In most cases, your insurer pays your life insurance policy in a lump sum to your beneficiaries after you die.
A beneficiary or representative of your estate starts the claims process with your insurer after your death, submitting required forms along with a copy of the death certificate. Insurers may delay payouts if the policyholder’s death is ruled a homicide or suicide. Also, deaths that happen in the first two years after signing up for life insurance coverage typically are subject to something called the two-year contestability clause. This clause allows your insurer the right to more thoroughly investigate your claim to confirm you didn’t provide false or fraudulent information to get a life insurance policy.
You might be able to, but it depends on whether you customized your policy at signup with an accelerated benefit rider. These riders allow you to receive a percentage of your policy’s payout if you unexpectedly fall ill or suffer a disability. Depending on your policy’s terms, you can receive your accelerated benefit in periodic installments or as a lump sum to cover the costs of a critical or chronic illness, including long-term care.
Everyday living expenses
Mortgage repayments
Other outstanding debts
Education expenses
To find a comprehensive life insurance policy at the best rates, look into how coverage amounts affect your premiums, the flexibility of your policy options and additional riders or features specific to the providers you’re interested in.
To simplify the process of comparing different policies, ask yourself:
While term and permanent life insurance are the basics, you’ll find variations that allow for flexibility in how much you pay in premiums, how you can accumulate cash value, whether you can borrow against your policy and more. Knowing what these common variations provide can help you customize a policy that meets you and your family’s anticipated needs.
| Term life | Whole life | Universal life | Variable life | Variable universal life | |
|---|---|---|---|---|---|
| Length of term | 1 to 30 years | Life | Life | Life | Life |
| Cost of premium | Level premiums | Level premiums | Premiums can vary at the policyholder’s discretion, subject to federal tax laws | Level premiums | Premiums can vary at the policyholder’s discretion, subject to federal tax laws |
| Guaranteed death benefit |  |
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| Guaranteed cash value |  |
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May be exhausted to pay premiums, safeguarded from risk | |
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| How your money appreciates or depreciates | N/A | Set rate of interest | Variable rate of interest | Pooled accounts managed by investors | Pooled accounts managed by investors |
| What you should know | You can’t lose coverage, and you receive no premium refund at the end of the term | Not as flexible as other life insurance options | Flexible policy options and premiums | High-priced policy with no or minimal cash appreciation | High-priced policy with no or minimal cash appreciation |
Given the general unpredictability of life, there’s no one universal answer for how much coverage you should buy. Experts will tell you to start with a multiple of your annual income — up to 10 times your salary. Generally, you want to determine an amount that will cover immediate and ongoing costs after you die, so that your family and other dependents can support their current way of life.
When determining how much coverage is enough to protect your family, consider your debts, living expenses and lifestyle. Also plan for how your loved ones will pay for your funeral, burial and related expenses.
Think about how much of your salary goes to pay down debt and how much you pay monthly or annually toward:
Think about the number of years you might need to cover your family’s living expenses and whether savings or assets can offset those costs after your death, including:
Factor into your life insurance coverage everyday and even irregular expenses, like:
At some point, your family will be able to rely on Social Security benefits and other investments. But until then, think about:
To calculate your policy’s premiums, life insurance providers engage a complicated review of your age, health and lifestyle called underwriting. They often run these details through proprietary algorithms and analytical tools to determine the level of risk in taking you on as a policyholder.
How a life insurance provider rates you within each category varies, but most consider:
You have options when shopping for a life insurance policy. Today, you’ll find brokers that work with a range of companies to help you find the best prices in their network on the coverage you need, but they may not offer the personalized service you’ll find with a direct agent.
Both broker and agents work on behalf of providers to sell you a life insurance policy. It all comes down weighing each against what you’re looking for.
Many retirement plans provide members with a default level of coverage that you can increase, decrease or cancel altogether. If your employer matches contributions through a 401(k), your plan most likely includes default coverage.
To know whether your 401(k)’s coverage is sufficient for your situation, consider the benefits and drawbacks of investing through your retirement plan.
When it comes to life insurance, you don’t want to overpay. But you also want a policy that leaves your family underinsured when they need it most. Here’s how to make sure you’re getting adequate coverage within your budget.
You may find it surprising how little a life insurance policy can cost monthly when compared with other expenses. Budgeting for life insurance is often easier than some of the other expenses you might be shelling out monthly such as a cellphone bill or car insurance.
An annuity is long-term investment tool designed to pay out your death benefit as regular income to you or your beneficiary, rather than as a lump sum. Life insurance annuities earn interest at either fixed or variable with either immediate or deferred disbursal.
Fixed annuities earn interest a rate that’s fixed at the time you purchase your policy. While a variable annuity earns interest at a rate that depends on the market, which makes it more like an investment that increases or decreases over time. Your money is distributed into a subaccount that’s managed by a pool of investors, and what you’re paid depends on how well your investment does.
When it comes to how quickly you’ll get paid, you can either set up an immediate annuity that pays right away or a deferred annuity that disperses cash at a later date that you agree on.
Keep in mind that your annuity is valid only as long as your insurer is in business. When you’re looking for a policy, shop with highly rated companies.
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