When you have life insurance, you protect your loved ones from financial struggle when you pass away. Life insurance pays a death benefit, which is a lump sum of money, to the beneficiaries you name on your policy.
The death benefit can help:
- Replace the income you once provided. Your family maintains a certain standard of living. The life insurance proceeds can help with paying the bills and buying groceries.
- Pay the mortgage or rent. For your children to be able to stay in their childhood home and school district after the loss of a parent is essential to their emotional healing. A mortgage-free home or rental payments allows your family to worry less about their financial future.
- Continue your loved ones’ dreams. Do you plan on helping a child through college? Or paying for a child’s wedding? Is it you and your spouse’s dream to move to a new state after retirement? The life insurance proceeds can help make these dreams a reality even if you die unexpectedly.
- Pay for the funeral. The average cost of a funeral and burial can easily put an average family back financially. They are dealing with the loss of a loved one while also trying to figure out how to pay for the death. The life insurance proceeds can replenish the savings accounts.
- Continue a business. Life insurance can be used in many ways to keep a business going even if the owner passes away. Proceeds can ensure your business can continue, your employees still have income and benefits, and your family is still provided for.
Don’t have life insurance yet? What’s holding you back?
“I don’t understand life insurance.”
Life insurance is a contract between a person (policyowner) and an insurance company. If the insured person dies during the coverage period, the company will pay out a previously determined sum of money (death benefit) to whomever the person chooses (beneficiaries).
There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance is the most affordable life insurance option for families. The coverage lasts a specific period of time, called a term. These terms range from 5 to 40 years, availability depending on your age.
If the insured person dies within that term, the life insurance company pays the coverage amount (the death benefit) to the beneficiaries of the policy. Even if you die one day after the policy is activated, the life insurance company still pays the FULL death benefit. However, the insurance company is allowed to investigate the claim if the insured dies within the first two years of policy activation.
Permanent life insurance contains many different policy options. The most common are whole life insurance, universal life insurance, and guaranteed life insurance.
All permanent life insurance policies are designed to last until you die. Depending on the type of permanent policy, there also may be a cash value accumulation component and it may pay dividends. Because of the extra beneficial features of permanent life insurance, it’s often 10-20 times more expensive than a term life insurance policy with the same coverage amount.
A healthy non-smoking 40-year-old male is looking to purchase $500,000 of life insurance.
A term life insurance policy with a 20-year term (which gives him coverage until he is 60 years old) is approximately $32 per month.
A guaranteed universal life insurance policy (which gives him coverage until he dies, but no other extra benefits) is approximately $330 per month.
A whole life insurance policy (which gives him coverage until he dies, plus cash value and possible dividends) is approximately $740 per month.
“I don’t know what life insurance I need.”
Most people looking to buy life insurance want it mainly to protect their loved ones if they die unexpectedly. In these days of GoFundMe, people are quickly realizing how devastating a loss can be—not only emotionally—but financially.
If your main reason for life insurance is to make sure your family is taken care of after you die, term life insurance is your best option. For a reasonable price that is manageable long term, you can buy enough insurance to help cover many things your current income pays for.
Term life insurance face amounts (the death benefits) range from $50,000 to millions of dollars. Many financial advisors recommend 10 times your income. But that isn’t the right amount for everyone.
If you aren’t sure how much coverage to buy, we have an easy to use life insurance calculator. By plugging in a few numbers, the tool will calculate a suggested life insurance amount for you. You can also ask a Quotacy agent for advice if you prefer to talk to someone one-on-one.
If you own a business, have a large estate, or there’s someone who will be dependent on you their entire life (e.g. a special needs child), then permanent life insurance (or a mix of both) may be more suitable. A Quotacy agent can discuss these needs with you and run personalized quotes for you.
“I don’t think I can afford life insurance.”
The cost of life insurance for you will depend on many factors, not the least of which is the amount and type you purchase. Your age, health, and lifestyle factors are also part of the equation insurance companies use to determine your price. The good news is most Americans overestimate the cost of a life insurance policy.
The second piece of good news is that with many types of life insurance you lock in your rate when you buy the policy. For example, if you’re 40 years old and buy a 30-year term life insurance policy that costs $35 per month, that price will never increase even when you’re 60 years old and still paying for that policy. Even if you were to be diagnosed with a serious medical condition, that rate stays the same.
This is one reason why we encourage people to buy life insurance as soon as they need it. The longer you wait the possibility of developing a health issue increases and, obviously, you keep aging. These factors can increase the cost of life insurance.
We also encourage you to buy what you can comfortably afford. You may buy a $5,000,000 term life insurance policy with the best intentions for your family, but if your budget tightens up a few years later and you no longer can afford the premiums and need to cancel it, you don’t get a refund. It’s not a complete loss because you at least had protection for those first few years, but you will need to go through the process again for a new policy and your rates may now be higher years later.
Here at Quotacy we always say a little life insurance is better than none. To get started, simply run term life insurance quotes to find a premium amount you’re comfortable with. After you submit your application online, your dedicated Quotacy agent will advocate for you to make sure you’re getting the best price possible.
Quotacy works with over 25 top-rated life insurance companies. This allows us to shop for you behind the scenes if you have a particular risk factor that may be looked at unfavorably with some of the companies. For example, some life insurance companies may decide a SCUBA diver instructor is too much risk to take on while another may accept them with open arms. Your Quotacy agent will make sure you’re paired with the company that gives you the best offer. After your policy is active, your agent will also be there in the future to help with any policy service needs.
About the writer
Natasha Cornelius, CLU
Senior Editor and Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.