Life insurance can be seen as complicated, morbid and boring. And many people incorrectly think it’s too expensive for them, but life coverage can serve as a vital safety net for your family if the unthinkable happens.
Having life insurance isn’t as common as it was just a decade ago. Only 52% of Americans currently have life insurance. It was 63% in 2011, according to the 2021 Insurance Barometer Study by LIMRA and Life Happens, industry-funded groups.
One of the biggest misconceptions about life insurance is that it’s expensive. You can save on life insurance by comparing life insurance quotes and figuring out exactly what policy works for your situation.
Here’s what you need to know about the basics of life insurance and how to get life insurance quotes.
What Is Life Insurance?
Life insurance is a contract between you and an insurance company. That contract is called a policy. You agree to pay a premium—a single payment upfront or regular payments over time—to keep the policy active. In return, the insurance company will pay a death benefit to your beneficiary if you die while the policy is in force.
The amount of the death benefit depends on how much coverage you choose to buy. Coverage amounts can range from the very small (such as $5,000) to cover funeral expenses to the millions of dollars. You can name more than one beneficiary and designate that each one gets a certain percentage of the payout. You also can name organizations such as charities as beneficiaries.
The more coverage you buy, the higher your premium. Gender, age and health at the time you apply for coverage also affects life insurance quotes. You can lock in a lower quote if you get coverage while you’re young and healthy.
If you wait until you have serious health issues, you might not be able to get a traditional life insurance policy because insurers will consider you too much of a risk to insure.
Why Do I Need Life Insurance?
The primary reason to buy life insurance is to provide a safety net for those who rely on you for financial support. If you were to die while the policy was in force, your beneficiaries would receive a tax-free payout that could be used however they want. That money could help them do the following:
- Pay for your final expenses, such as a funeral service and burial
- Help replace your income so your family can pay bills and daily expenses
- Help pay off debts, such as a mortgage
- Help pay for child care
- Help pay for your children’s college education
Buying life insurance could also allow you to leave an inheritance to your children without having to worry about how you spend your own money in retirement. Or it can be a way to leave a legacy because you can donate your life insurance to charity, organization or cause that is important to you.
Life insurance also can be used as a retirement and tax-planning tool. A permanent life insurance policy typically includes a feature that allows it to build cash value. The cash value grows tax-deferred and can be accessed as a source of extra income in retirement.
However, this strategy typically makes sense only for high-income individuals who have maxed out other retirement accounts. It’s important to consult with a financial planner to find out whether this strategy makes sense for you.
Types of Life Insurance
There are two primary types of life insurance policies: term life insurance and permanent life insurance. And there are a variety of options for permanent life insurance. So it’s important to understand what each type offers before making a choice.
Term Life Insurance
Term life insurance offers a level term period for a certain number of years—typically 5, 10, 15, 20, 25 or 30 years. During this time period your premiums will stay level. The insurer will pay a death benefit only if you die while coverage is in force. The longer the term length you choose, the higher your life insurance quotes.
Term life insurance quotes are much lower than permanent life insurance quotes and can be an affordable way to have coverage in force during the years when your family depends on you most for financial support.
Permanent Life Insurance
Permanent life insurance offers lifelong coverage, as long as premiums are paid. It also offers the ability to build cash value that grows tax-deferred. These features make permanent life insurance quotes much higher than term life. Permanent life also can be more complicated than term life because there are a variety of policy types.
Whole life insurance provides lifelong coverage and a cash value feature. It tends to be the most expensive type of life insurance because it offers a guaranteed rate of return on the cash value, the opportunity to earn dividends from the insurance company, and premiums and the death benefit remain the same over time.
Universal life insurance offers lifelong coverage but doesn’t necessarily have the same guarantees as whole life insurance. Some types of universal life policies allow you to adjust the premium payments and death benefit, within certain limits. And some universal life insurance policies have fluctuating rates of return on the cash value.
- Guaranteed universal life might have little cash value, but the premiums and death benefit remain constant.
- Indexed universal life may offer the ability to adjust premiums and the death benefit. The cash value is tied to a market index, such as the S&P 500, so the rate of return can vary. Indexed universal life policies tend to be complicated and can have high fees.
- Variable universal life offers adjustable premiums and lets you choose how to invest the cash value portion among investment options offered by the insurer. With variable universal life insurance, the rate of return will depend on the investments you choose.
Guaranteed issue is another type of permanent life insurance. It’s geared toward a certain segment of the population: older adults who want a policy that will help pay for final expenses. There is no medical exam, and you can’t be turned down for coverage as long as you meet the age requirements. Coverage typically is limited to $25,000 or less. And the price is high compared with other policies for the coverage you get.
How Much Are Life Insurance Quotes?
Age and gender are two factors that influence life insurance quotes. Here are life insurance quotes from multiple life insurers for someone in excellent health who doesn’t smoke.
Life insurance quote examples for 20-year, $500,000 term life insurance
