Life insurance basics is an important buying decision. You want to make sure you understand what you’re getting, or else it may affect your loved ones. This True or False quiz will test your life insurance basics knowledge.
- True or false? In order for your spouse to get life insurance money if you die, he or she needs to be the owner of your policy.
- True or false? If you buy a term policy with a 20-year term length, your coverage expires in 20 years.
- True or false? Your life insurance coverage must equal 10 times your income.
- True or false? If you have life insurance through your job, you don’t need a personal life insurance policy.
- True or false? You get your money back if you don’t die before your term policy ends.
- True or false? You can buy life insurance on your next-door neighbor.
- True or false? Your policy premiums increase each year.
- True or false? Term life insurance is less expensive than whole life insurance.
- True or false? You can name your dog as your life insurance policy’s beneficiary.
- True or false? You need to have a medical exam in order to buy life insurance.
1. True or false? In order for your spouse to get life insurance money if you die, he or she needs to be the owner of your policy. False.
You can be the owner of your own policy. The individual who receives a death benefit if you die is the beneficiary. You can be both the owner and the insured and your spouse would be listed as beneficiary.
Learn more about policy ownership in this blog: Who Can Own a Life Insurance Policy?
2. True or false? If you buy a term policy with a 20-year term length, your coverage expires in 20 years. True.
A term life insurance policy lasts a specific period of time. This period of time is called a term. The most common term lengths are 10, 15, 20, 25, and 30 years. At the end of the term, your policy expires.
If you find yourself in need of more coverage, most carriers allow you to renew your term policy, but the premiums often increase drastically so we typically recommend you go with a different option. Either convert your term policy into a permanent policy or buy an altogether brand new term policy.
Learn more about these options in this blog: My Term Policy is Going to Expire – What Can I Do?
3. True or false? Your life insurance coverage must equal 10 times your income. False.
Life insurance is not one-size-fits-all. While the industry rule of thumb is that you should own ten times your salary, this calculation isn’t right for everyone.
Learn more in this blog: Life Insurance: Do You Need Ten Times Your Salary?
4. True or false? If you have life insurance through your job, you don’t need a personal life insurance policy. False.
We recommend that you always supplement your work life insurance policy with a personal life insurance policy. With an employer group plan, the amount of coverage you have is typically one or two times your annual salary. For most working individuals, this amount is not enough to protect your family financially if you were to die and your income was suddenly gone. Also, these policies don’t follow you if you leave your job. If your next place of work doesn’t offer this benefit, you suddenly are without coverage.
Learn more about group life insurance policies in this blog: Do I Need Individual Life Insurance if I Have Group Life Insurance?
5. True or false? You get your money back if you don’t die before your term policy ends. False.
With a traditional term life insurance policy, you do not receive any premiums back if you do not die within the term. Think of it like car insurance. Just because you don’t file a claim, doesn’t mean you get your money back.
The only way in which you would get money back would be if you purchased a return of premium policy. However, you pay a higher premium for the benefit of knowing you would get your money back if you outlive your policy.
Learn more in this blog: What Happens If I Don’t Die While My Policy Is Inforce?
6. True or false? You can buy life insurance on your next-door neighbor. False.
You cannot buy life insurance on someone without insurable interest. Insurable interest is when your finances would be negatively affected as a direct result of another person’s death. Your neighbor’s life has no bearing on your finances.
Learn more in this blog: Can I Buy Life Insurance on Someone Else?
7. True or false? Your term policy premiums increase each year. False.
When you buy a term life insurance policy, your premiums will never increase for the life of that policy. This is why we always recommend that you buy a policy as soon as you have a need for it. The younger and healthier you are, the cheaper your policy and you can lock in that low rate.
8. True or false? Term life insurance is less expensive than whole life insurance. True.
A whole life policy is a permanent policy and, in addition to accumulating a cash value, will last your entire life. Because of these two factors, whole life insurance is roughly ten times more expensive than a term policy. A term policy is typically the right choice of coverage for most people, but permanent insurance has its benefits too.
Learn more in this blog: Is Term Life Insurance Better than Whole Life Insurance?
9. True or false? You can name your dog as your life insurance policy’s beneficiary. False.
While Mr. Fluffikins is indeed a part of the family, you cannot name a pet as a beneficiary on your life insurance policy. What you can do, however, is be sure to leave instructions in your will as to how your pet should be cared for. You can even go one step further and create a Pet Trust and name the trust a beneficiary of your life insurance policy.
Learn more about how to protect your pet in this blog: Pet Trusts and Estate Planning for Your Pets
10. True or false? You need to have a medical exam in order to buy life insurance. True, most of the time.
Most life insurance carriers will require a medical exam in order to approve you for coverage. Your health plays a huge role in determining your policy costs and the results of a medical exam help a life insurance company determine these costs. Some carriers do offer no-exam policies, but you need to qualify for these by being in excellent health and within a certain age range.
Learn more about life insurance medical exams in this blog: Do I Need a Medical Exam to Get Life Insurance?
How did you do? If you didn’t get very many correct, that’s perfectly OK! You now know the basics of what you should know before buying life insurance. Our FAQ page is a great resource if you want to learn more.
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.