Life Insurance 101: Your Guide To Planning Ahead

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Key Things To Know

Life insurance provides financial protection for your loved ones after you die. It can help cover funeral costs, replace lost income, pay off debts, and support long-term goals like education or caregiving.

  • There are two main types of life insurance: Term life provides coverage for a set number of years and typically has lower premiums. Whole life (and other forms of permanent insurance) lasts your entire life and may build cash value over time.
  • Life insurance can help cover more than funeral expenses: In addition to final arrangements, it can provide income for dependents, pay off mortgages or loans, or support special needs and legacy giving.
  • You must name a beneficiary to receive the payout: This is the person (or people, or trust) who will receive the death benefit. Be sure your designations are up to date and aligned with your estate plan.
  • The policy’s death benefit is usually tax-free: Beneficiaries typically receive the life insurance payout without owing income tax, though large estates may have estate tax considerations.
  • Group policies through work may not be enough: Employer-sponsored life insurance can be a good start, but it often ends when you leave your job and may offer lower coverage than your family needs.
  • You can own more than one policy: It’s common to layer term and permanent policies or hold individual and employer-provided coverage at the same time.
  • Health and age impact your premiums: The younger and healthier you are when you apply, the lower your rates will likely be. Many policies require a medical exam.
  • You should review your policy regularly: Update your coverage and beneficiaries after major life changes such as marriage, divorce, the birth of a child, or the death of a loved one.
  • Permanent policies may offer living benefits: Whole life and other permanent policies sometimes allow you to borrow against the cash value or use accelerated benefits in case of terminal illness.
  • Life insurance can play a strategic role in estate planning: It can provide liquidity for taxes, support charitable giving, fund a buy-sell agreement for a business, or equalize inheritance among heirs.

What is Life Insurance?

Life insurance is a contract between you and an insurance company, where you pay regular premiums in exchange for a lump-sum payment, known as a death benefit, to your beneficiaries upon your death. This payout can be used to cover various expenses, such as funeral costs, outstanding debts, mortgage payments, and everyday living expenses.

Types of Life Insurance

There are several types of life insurance policies to consider, each with its own features and benefits. Understanding the differences can help you choose the best policy for your situation.

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Get An Insurance Policy

Working with a an insurance provider will help you identify what type of policy is right for your situation.

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FAQ

View frequently asked questions about life insurance policies.

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Types of Life Insurance

Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive the death benefit. If you outlive the term, the policy expires, and no benefit is paid.

  • Pros: Affordable premiums, straightforward coverage.
  • Cons: Coverage ends when the term expires, no cash value accumulation.

Whole life insurance offers lifelong coverage as long as premiums are paid. It also includes a cash value component that grows over time and can be borrowed against or withdrawn.

  • Pros: Lifelong coverage, cash value accumulation.
  • Cons: Higher premiums, less flexibility.

Universal life insurance provides permanent coverage with flexible premiums and death benefits. The policy includes a cash value component that earns interest.

  • Pros: Flexible premiums and death benefits, cash value growth.
  • Cons: Requires active management, can be more complex.

Variable life insurance is a type of permanent life insurance that allows you to invest the cash value component in various investment options, such as stocks and bonds.

  • Pros: Potential for higher cash value growth, lifelong coverage.
  • Cons: Investment risk, higher fees and complexity.

Benefits of Life Insurance

  • 1

    Financial Protection: Ensures your family has financial support in your absence.

  • 2

    Debt Coverage: Can be used to pay off outstanding debts, such as mortgages and loans.

  • 3

    Income Replacement: Provides a source of income for your dependents.

  • 4

    Estate Planning: Helps cover estate taxes and other final expenses.

  • 5
    Savings and Investment: Certain policies accumulate cash value that can be used for future needs.

Get Your Life Insurance Policy

Homesteaders Life Company

Homesteaders Life Company is a national leader providing products and services to promote and support the funding of advance funeral planning and end-of-life expenses.

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New York Life

New York Life is the nation's largest mutual life insurance company and one of the largest life insurance companies in the world.

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Global Life

Globe Life is dedicated to providing life and supplemental health insurance to help protect your loved ones from financial stress so they can focus on what matters most.

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National Guardian Life

National Guardian Life has over 100 years of providing innovative life insurance, annuity, and pre-need products.

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Frequently Asked Questions

Life insurance is a contract between you and an insurance company where you pay regular premiums in exchange for a lump-sum payment, known as a death benefit, to your beneficiaries upon your death. This payment can be used to cover various expenses, such as funeral costs, debts, mortgage payments, and everyday living expenses.

The main types of life insurance are:

  • Term Life Insurance: Provides coverage for a specific period (e.g., 10, 20, or 30 years) with no cash value.
  • Whole Life Insurance: Offers lifelong coverage with a cash value component that grows over time.
  • Universal Life Insurance: Provides permanent coverage with flexible premiums and death benefits, including a cash value component that earns interest.
  • Variable Life Insurance: A type of permanent life insurance that allows you to invest the cash value in various investment options.

To determine how much life insurance you need, consider your financial obligations and the needs of your dependents. This includes:

  • Outstanding debts (e.g., mortgage, loans)
  • Future education expenses for your children
  • Living expenses for your dependents
  • Funeral and estate settlement costs
  • Income replacement

  • Term Life Insurance: Provides coverage for a specific period and does not accumulate cash value. It is generally more affordable with lower premiums.
  • Whole Life Insurance: Offers lifelong coverage and includes a cash value component that grows over time. It has higher premiums but provides additional financial benefits and security.

Many term life insurance policies offer a conversion option, allowing you to convert your term policy to a whole life policy without undergoing a medical exam. This can be beneficial if your health has changed or you want permanent coverage.

Several factors influence life insurance premiums, including:

  • Age: Younger individuals typically pay lower premiums.
  • Health: Healthier individuals usually receive better rates.
  • Lifestyle: Risky behaviors (e.g., smoking, extreme sports) can increase premiums.
  • Coverage amount: Higher coverage amounts result in higher premiums.
  • Policy type: Term life insurance generally has lower premiums than permanent policies.

If you miss a premium payment, most insurance companies offer a grace period (typically 30 days) during which you can make the payment without losing coverage. If you do not pay within the grace period, your policy may lapse, and you could lose coverage.

You can borrow against the cash value of a whole life, universal life, or variable life insurance policy. Loans against your policy's cash value typically have favorable interest rates, but unpaid loans can reduce the death benefit paid to your beneficiaries.

Life insurance riders are additional benefits or coverage options that you can add to your policy for an extra cost. Common riders include:

  • Accidental Death Benefit: Provides an additional payout if death occurs due to an accident.
  • Waiver of Premium: Waives premiums if you become disabled and cannot work.
  • Child Term Rider: Provides a death benefit if a covered child passes away.
  • Living Benefits: Allows you to access a portion of the death benefit if you are diagnosed with a terminal illness.

When selecting a life insurance provider, consider the following:

  • Reputation and Financial Stability: Choose a provider with a strong reputation and financial ratings.
  • Customer Service: Look for a company known for excellent customer service.
  • Policy Options: Ensure they offer the types of policies and coverage options you need.
  • Price: Compare quotes from multiple providers to find the best rates.

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Disclaimer: The information provided on this website and by Buried in Work is for general informational purposes only and should not be considered legal advice. Please consult with a qualified attorney or subject matter expert for advice specific to your situation.