Life insurance and annuities make financial guarantees based on a person's life. Learn to navigate their complexities to protect your family and accomplish your goals.
Life insurance is a contract between you and an insurance company. The general agreement is that in exchange for sufficient premiums, the insurer will pay your beneficiaries a lump sum, called the death benefit, if you die during the policy’s term. How much you’ll pay and whether you’re approved for a policy is often based on your health, age, gender, lifestyle, occupation, and credit history.
Term life insurance is a type of coverage that lasts for a set number of years. In other words, once the term expires, the policy (and your coverage) ends. Terms available typically range from five to 40 years. Term insurance is cheaper than permanent insurance because it isn’t designed to cover your entire life and there’s no cash value component.
Whole life is a type of permanent life insurance coverage in which premium payments and the death benefit are fixed. They’re more expensive than term policies because they’re designed to last a lifetime, and less flexible than universal life policies. They offer guaranteed cash values, payments are guaranteed not to increase, and some policies pay dividends.
Universal life insurance, also known as adjustable life, is a flexible premium life insurance policy. Like whole life, it’s a permanent policy designed to last until your death, whenever that is, and is more expensive than term coverage. However, you can adjust your premium payments up or down, or pause making them, and may be able to change the death benefit.
Supplemental life insurance, also known as voluntary life, is an optional life insurance benefit usually offered through work and designed to supplement your basic life insurance coverage. It can be more affordable than a policy purchased outside of work and usually won’t require a medical exam or underwriting—making it a good option for people who wouldn’t otherwise qualify for coverage.
Life insurance may be available through your work, through membership organizations, and through life insurance agents and brokers both off- and online. Before you start searching for quotes, figure out how much and what type of coverage you want and how much you can afford. Once you have these answers, you can better shop quotes and compare policies and insurance companies.
Cash value life insurance is another term for permanent life insurance and refers to policies with a cash value that builds over time to offset the increasing cost of insurance as you age. Universal and whole life insurance are types of cash value life insurance. The cash value makes these policies an asset that can be used for collateral or from which funds can be withdrawn or borrowed.
With an accelerated underwriting process you can skip the medical exam. Instead, insurers ask extensive medical questions on the application and collect data from external sources, including motor vehicle records, credit reports, the Medical Information Bureau, and health records.
Guaranteed issue life insurance is a type of coverage that doesn’t require answering health questions or taking a medical examination. It sets limits on who can purchase a policy and the amount of death benefit, and is one of the easiest types of life insurance to buy.
A life insurance health class is part of a system insurance companies use to determine the premium you’ll pay on your policy. An insurance company places applicants into figurative groups or classes based on their projected mortality risks.
A life insurance beneficiary is the person, persons, or organization that will be paid a certain amount of money upon your death.
Insurance portability lets you take your life insurance coverage with you when you leave a job or your employer stops offering life insurance as a benefit.
You can convert a convertible term policy into permanent coverage without needing to provide evidence of insurability (like taking a health exam or answering medical questions). Convertible term can be a good choice if you’d prefer to have permanent coverage but can’t currently afford it.
Riders, also called endorsements, are policy add-ons which typically increase (but can also limit) the coverage of the original life insurance policy.
Paid-up additions (PUAs) may be available with mutual whole life policies that pay dividends. PUAs refer to small increases in the death benefit (and cash value) of a life insurance policy for which no ongoing premium is due.
Living benefits are features on life insurance policies that pay some or all of the death benefit early and can be useful while the insured person is still alive. Also referred to as an “accelerated death benefit,” they may be triggered by chronic illness, terminal illness, critical illness, or a need for long term care.
Cash value is the amount of money inside a permanent life insurance policy that remains after your premiums pay for policy expenses. It can offset insurance costs as they increases over time, and may be accessible via loans and withdrawals.
The amount the beneficiary or beneficiaries receive from a life insurance policy when the person insured dies.
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