Life Insurance

What is life insurance?

Life insurance is insurance that pays money either on the death of the policyholder or after a set period of time. This money is paid to a beneficiary. Beneficiaries are the people you pick to get the money from the life insurance policy.

Most life insurance helps your family or other beneficiaries pay bills and other living expenses after you die. But some life insurance can be used while you are still living.

Why have life insurance?

Not everyone needs life insurance. Consider your age, your assets, and if people depend on you for financial support.

What types of policies are available?

Temporary Life

Temporary policies are meant to cover insurance needs that are temporary, such as paying off a mortgage or other debt, or paying for college expenses.

Term Life. Most term life policies provide a death benefit that guarantees a set payout to your beneficiaries if you die during the policy term. The death benefit and premium are typically fixed and has no cash value. Term policies are only in effect for a set amount of time. For example, terms may be for 1 year, 5 years, 30 years, etc. The death benefit can increase, decrease, or stay the same over the term.

Annual Renewable Term. These are policies with a 1-year term. What you pay, also known as the premium, changes every year depending on your age when it is renewed.

Level Term. These are policies with term periods of several years. The premium for the policy is usually fixed during the term of the policy. But, there are times when the premium changes after a few years. Make sure you know before you buy a policy.

Permanent Life

These policies provide coverage for your entire life and have other features and benefits. Permanent life insurance provides a death benefit and cash value. The unique feature is the cash value savings component that grows over time. These policies offer financial flexibility because they let you withdraw, invest, or borrow from the cash value earnings while you are still living. You can also use the cash value to pay for future premiums.

Traditional Whole Life. Premium is based on your age at the time you buy the policy. The younger you are, the lower the premium will be. The amount you pay, the death benefit, and cash value are set and do not change over time.

Universal Life. Universal life is a type of whole life policy but the amount of premium you pay, the death benefit, or the cash value can change.

*⃣Review your policy every year. Ask for an “inforce illustration” to make sure the policy values have not changed. An inforce illustration is a picture of your insurance policy. It will show you exactly what has happened from the beginning of your policy to now, and what may happen in the future with current assumptions. If your policy values have changed, you may need to adjust your premiums to avoid losing your death benefit or cash value.

Other

Talk to an agent, a company, an attorney, or financial advisor on how these differ from life insurance.

  • Annuities. An annuity is a financial tool for saving money. Most people use them for retirement or to build savings. They can also provide money for your family or other heirs.
  • Credit Accident and Health and Credit Life. Credit insurance is sold along with a loan, a credit card, or other credit account and is designed to pay your lender if you are unable to make the payments yourself. See our Credit Bill of Rights to learn more.
  • Prepaid Funeral Insurance. This is a special type of policy that pays for funeral expenses in advance.

Other Important Things to Know

Group Life Insurance is bought by employers, government entities, and other groups like professional organizations, unions, fraternal societies, or places of worship. If you are not eligible to buy an individual policy because of your age or health, group life insurance may be a good option.

Medicaid counts life insurance cash values as an asset and which could affect your eligibility for Medicaid.

Taxes. Talk to an agent, a company, an attorney, or financial advisor to understand the how your or your beneficiary’s income taxes will be affected.

Bankruptcy. The cash value and death benefit of a life insurance policy are usually exempt from creditors, demands in bankruptcy proceedings, execution, attachment, garnishment, or other legal processes.

More Terms to Know

Beneficiary – the person or people you pick to get the money from the life insurance policy.

Cash Value – part of permanent life insurance that can be used for loans, a source of cash, or to pay policy premiums. The cash value usually builds up over time and can be used while you are still living.

Death Benefit – the amount paid to the beneficiary when the policy holder dies.

Estate – the money and property owned by a particular person, especially at death.

Guaranteed Renewable – a policy that must be renewed by the insurance company as long as you keep paying your premium.

Inforce Illustration – a picture of your insurance policy. It will show you exactly what has happened from the beginning of your policy to now, and what may happen in the future with current assumptions. Illustrations will usually show values using current assumptions and values using the guarantees provided under the policy.

Maturity Date – the date the life insurance policy is payable.

Policy – a contract between you and the insurance company. The policy tells you what’s covered and what the insurance company is required to pay.

Premium – the amount you pay an insurance company for your policy.

More Terms to Know

Beneficiary – the person or people you pick to get the money from the life insurance policy.

Cash Value – part of permanent life insurance that can be used for loans, a source of cash, or to pay policy premiums. The cash value usually builds up over time and can be used while you are still living.

Death Benefit – the amount paid to the beneficiary when the policy holder dies.

Estate – the money and property owned by a particular person, especially at death.

Guaranteed Renewable – a policy that must be renewed by the insurance company as long as you keep paying your premium.

Inforce Illustration – a picture of your insurance policy. It will show you exactly what has happened from the beginning of your policy to now, and what may happen in the future with current assumptions. Illustrations will usually show values using current assumptions and values using the guarantees provided under the policy.

Maturity Date – the date the life insurance policy is payable.

Policy – a contract between you and the insurance company. The policy tells you what’s covered and what the insurance company is required to pay.

Premium – the amount you pay an insurance company for your policy.