Whole Life Insurance FAQs
Life insurance is a thoughtful investment and to help you make the right choice, here are answers to the most frequently asked questions.
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Here at Quotacy we want to make life insurance easy to understand and easy to buy. As you’re shopping for whole life insurance, you may have questions. These whole life insurance FAQs can help you get a solid grasp on the important aspects of whole life insurance.
What is 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).
When buying life insurance, you have three main choices: term life insurance, whole life insurance, or universal life insurance.
What does life insurance cover?
Life insurance covers a set amount of the on-going income your family would lose if you were to die. The payout they would receive can be used to cover a number of financial obligations from day-to-day expenses like food and childcare to larger sources of debt like a mortgage. It can also be used to contribute to or take care of future costs like college tuition for a child or retirement for a spouse.
Why is life insurance important?
Life insurance is important to ensure your loved ones are financially protected and not held solely responsible for personal and long-term debts as well as on-going expenses. The death benefit from a life insurance policy can help make it easier for families to focus on recovering emotionally from the death of a loved one and not have to worry about how they’re going to pay the bills.
Life insurance can also be important for a business owner. Small business owners work hard for the success of their companies. Life insurance on themselves and other key people can ensure the continuation of the business even if a death occurs.
Who needs life insurance?
If you have anyone that depends on your income now, life insurance is incredibly important for protecting their financial future and way of life. There are a number of situations and types of people that need life insurance to protect those who would be negatively impacted from the loss of income.
Types of individuals and reasons for coverage:
- Single people: Private student loans or co-signed debt like a car loan.
- Spouses: Expenses or bills that need two incomes like a mortgage or credit cards.
- Parents: Everyday needs like food and clothes as well as future costs like college tuition.
- Retirees: Any outstanding debts like medical bills as well as final expenses.
- Small business owners: Business loans backed by family assets or to buyout shares.
Learn more: Does Everyone Need Life Insurance?
Can you take out a life insurance policy on someone else?
The short answer, not without them knowing. There are two main things you need before you can buy life insurance on someone else: insurable interest and consent.
Having insurable interest means that the other person’s life has a direct impact on your finances. For example, spouses share expenses and debt, so they have insurable interest on one another.
The person you want to buy life insurance on also needs to know you plan to do so and give their permission. Life insurance companies gain proof of consent through signatures, phone calls, and if needed, a medical exam.
Learn more: Can I Buy Life Insurance on Someone Else?
What kinds of life insurance are there?
Life insurance can be broadly categorized into two different types: term life insurance and permanent life insurance. Within these categories there are different variations with features that are beneficial to specific needs and situations.
Term life insurance is temporary and provides coverage on the life of the policyholder during the set term length. If the insured were to die during this specific time period, the insurance company pays the death benefit to the beneficiaries. Because of its temporary nature, term life insurance is very affordable.
Types of Term Life Insurance
- Level Term Life Insurance
- Decreasing Term Life Insurance
- Annual Renewable Term Life Insurance
- Return of Premium Term Life Insurance
Permanent life insurance provides coverage for the entire life of the policyholder. The insurance company pays the death benefit to the beneficiaries when the insured dies. Because permanent life insurance is forever and has other features like a savings component that builds cash value, it’s 10-15 times more expensive than term life insurance.
Types of Permanent Life Insurance
- Whole Life Insurance
- Universal Life Insurance
- Guaranteed Universal Life Insurance
- Indexed Universal Life Insurance
- Guaranteed Whole Life Insurance
Is life insurance affordable?
Life insurance is more affordable than most people think. In general, Americans overestimate the cost of life insurance by 3-5 times the actual price.
The cost of life insurance depends on a number of factors like age, gender, type, and amount of coverage, as well as your individual risk. Basically, the younger and healthier you are, the more affordable it is. As for types of life insurance, permanent life insurance is 10-15 times more expensive than term life insurance.
You can get life insurance quotes, compare policies, and even apply to see your final approved price without committing to anything. All life insurance policies also have a free-look period. This is typically a 30-day period after the policy is activated. It allows you to review everything and cancel it for a refund if you decide you no longer want the policy.
Is life insurance taxable?
In 99% of cases, life insurance beneficiaries will receive the full payout tax-free as a lump sum. Only in very few situations will a death benefit payout be taxed.
To understand the ins and outs as well as common tax mistakes here’s a more in-depth look into How Life Insurance Is Taxed.
How much life insurance do I need?
Deciding how much life insurance you need will depend on your current finances, financial goals, and family situation. The right amount is different for everyone. The main purpose of life insurance is to replace your income, so your loved ones don’t suffer financially.
For the amount of coverage, experts recommend 10-15 times your annual income. If that doesn’t fit in your budget, buy what you can afford. A little life insurance is better than nothing at all.
For the length of coverage, 20 years is most common. Ideally, pick a term that will last until your largest source of debt is paid off or until your loved ones are financially independent.
Calculate your life insurance needs here: Life Insurance Calculator
What is guaranteed issue life insurance?
Guaranteed issue life insurance is a permanent life insurance policy that provides coverage (typically for individuals ages 50-80) no matter your health. The premiums won’t increase with age or a decline in health, but are more expensive because of the risk the insurance company takes on by approving coverage. The death benefit is also typically smaller (usually capped at $50,000) than traditional life insurance products.
How much does life insurance cost?
There isn’t an easy answer as to how much life insurance costs. It depends on a number of factors like gender, age, health, medical history, job, hobbies and more. There’s also the amount and length of coverage as well as the type.
There are several different types of life insurance available including term life, whole life, and universal life insurance. A permanent life insurance policy will cost 10-15 times more than a term life insurance policy.
In general, however, life insurance is much more affordable than people think. Americans overestimate life insurance premiums by 3-5 times the actual cost. You can easily get free life insurance quotes to get an idea of how much your life insurance would cost.
How long should your life insurance term be?
The length of your term life insurance policy depends on the unique needs of your personal situation. Term life insurance can last anywhere from 5 to 40 years, depending on your age.
Term life insurance is meant to financially protect your beneficiaries from your untimely death. The death benefit replaces a set amount of the income you provided so your family can take care of your end-of-life expenses and keep paying the bills.
For the typical family, the length of the term life insurance policy will ideally last until your largest source of debt is paid off or until your loved ones are financially independent.
You also have the option to buy more than one life insurance policy to cover different financial obligations that may have different commitment timelines. This strategy is called laddering life insurance.
Learn more: How Long Should My Life Insurance Last?
What is permanent life insurance?
Permanent life insurance is a general term for life insurance policies that provide coverage for a person’s entire life. There are two main types, whole life insurance and universal life insurance, which are 10-15 times more expensive than term life insurance.
Besides lifelong coverage, the higher cost is due to additional features like a savings component that builds cash value and dividend payments.
What are the different types of permanent life insurance policies?
In addition to whole life insurance and universal life insurance, there are several other permanent life insurance options available. Each with different benefits and drawbacks, which we’ll explain in the following sections.
Permanent life insurance products include:
- Whole life insurance
- Variable life insurance
- Universal life insurance
- Variable universal life insurance
- Indexed universal life insurance
- Guaranteed universal life insurance
- Guaranteed issue life insurance
Learn more: The Types of Permanent Life Insurance
What is whole life insurance?
Whole life insurance is a common type of permanent life insurance. Whole life insurance lasts your entire life. It also has a savings component that accumulates cash value and grows steadily with a guaranteed interest rate set by the insurance company.
You have the option of buying participating whole life insurance which, in addition, pays out dividends based on the performance of the insurance company’s investments.
Whole life insurance premiums are significantly more expensive than term life insurance because of its features but can be worth it to some individuals.
Reasons to consider whole life insurance
- Own a business
- Have a large estate
- Build tax-free wealth
- Equalize an inheritance without selling a business
- Leave a guaranteed inheritance to your loved ones
- Provide long-term care for someone with special needs or a disability
Learn more: Whole Life Insurance
What is variable life insurance?
Variable life insurance is life insurance that lasts your lifetime and accumulates cash value based on investments in securities. Variable life insurance is subject to daily portfolio fluctuation.
Unlike other cash value life insurance products, variable life insurance policyowners control how the policy funds are invested. The policyowner therefore benefits directly from any better-than-expected investments but also takes the hit from any poor investment performance.
What is universal life insurance?
Universal life insurance is a type of permanent life insurance that offers flexible premiums. Policyowners have the option to choose a set death benefit or an increasing one, which can be increased or decreased if needed. Universal life insurance policies also accumulate cash value and its growth fluctuates based on market interest rates.
It can be aggressively funded if the policyowner has the means or if there are budget issues, premium payments can be reduced or suspended altogether. However, there are terms and conditions that need to be followed to take advantage of these benefits.
What is variable universal life insurance?
Variable universal life (VUL) insurance is a permanent policy that offers flexible premiums, like universal life insurance, but also gives policyowners investment options, similar to variable life insurance. There are no interest rate or cash value guarantees with variable universal life insurance.
What is indexed universal life insurance?
Indexed universal life (IUL) insurance functions similarly to a standard universal life policy. However, it accumulates value through investments in a stock market index rather than the typical low-risk investments that most dividend-paying policies use to grow. Indexed universal life insurance guarantees a 0% floor so even if the stock market does not perform well, the policy won’t lose value. It just simply won’t grow.
What is guaranteed universal life insurance?
Guaranteed universal life insurance is a lower-cost permanent life insurance that pays out a set death benefit to your beneficiaries when you die. The premiums for guaranteed universal life insurance are less expensive than typical permanent life insurance products because it doesn’t have fancy extras like cash value accumulation or dividends.
Learn more: What Is Guaranteed Universal Life Insurance?
Is group or employer-provided life insurance coverage enough?
If you have a spouse, domestic partner, or children dependent on your income, then your group life insurance coverage alone is likely not enough. Especially if you have any major financial obligations like a mortgage.
With a group plan, the amount of coverage you have is typically one or two times your annual salary up to a certain maximum (typically $50,000). Most families need more life insurance protection than this. Group life insurance also doesn’t follow you if you leave your job. Having your own individual life insurance policy in addition to the group life insurance is best if you have dependents.
What is the difference between term and whole life insurance?
The biggest differences between term and whole life insurance are how long it lasts, how much it costs, and the benefits. Term life insurance is temporary while whole life insurance is permanent. Whole life insurance is also 10-15 times more expensive but comes with a savings component that accrues cash value.
Learn more: Term vs. Whole Life Insurance
Why buy life insurance at Quotacy?
We’re an independent life insurance broker that goes beyond helping you find the best policy. We make the process easier by pairing you with a personal Quotacy agent. After you apply, your agent will double check the market to make sure you’re getting the right coverage at the best possible price. Plus, we will NEVER sell your information and will always work with your best interest in mind.
Learn more: Why Use Quotacy to Buy Life Insurance Online
How does the life insurance application process work?
Once you’ve found the life insurance policy you wish to move forward with, completing your online application is simple and should only take 5 minutes. Plus, your progress is saved, so you can easily pick up where you left off.
Information needed to apply:
- The basics to verify who you are
- Current employment
- Lifestyle and hobbies
- Health history
Learn more: Term Life Insurance Application Process
What is life insurance underwriting?
Underwriting is the process a life insurance company uses to determine if you can be approved for the coverage you’re applying for and how much you will pay. Underwriters from the life insurance company evaluate your health and medical history, lifestyle, career, and financial status to see what may affect your life expectancy.
Learn more: What is Life Insurance Underwriting?
What is the life insurance phone interview like?
The 15-30 minute phone interview confirms your personal and health information submitted on your application and gives you an opportunity to explain your answers in your own words.
You may need to provide your:
- Driver’s license and Social Security number
- Healthcare providers (names, addresses, and phone numbers)
- Medical history (treatment dates and prescription medicines)
- Existing life insurance policy info (company name, coverage amount, and policy number)
- Financial info (income, assets, liabilities, and net worth)
Some companies will schedule your medical exam during your phone interview, if your policy requires an exam.
Learn more: What to Expect from Your Phone Interview
What is a paramedical exam?
A paramedical exam is a condensed physical exam and medical interview that life insurance companies often require in order to evaluate a life insurance applicant’s overall health.
The paramedical exam lasts about 20-30 minutes and consists of a medical questionnaire, height and weight measurements, and urine and blood samples. The medical examiner will come to your home or office.
Can I get life insurance without a medical exam?
For term life insurance, Quotacy currently works with one life insurance company that offers 100% guaranteed no medical exam: SBLI. This option is available to you if you are 60 years old or younger and looking to buy $500,000 or less in coverage.
Many other insurance companies we work with offer accelerated underwriting for qualified applicants. This process also allows applicants to skip the medical exam. Being eligible for accelerated underwriting isn’t guaranteed and your Quotacy agent won’t know if you’re accepted until after your application is submitted to the insurance company.
Can you use your own doctor for your life insurance medical exam?
No. The life insurance companies use third-party paramedical examiners to perform the medical exams. A paramedical examiner is specifically trained with the knowledge needed to work on behalf of an insurance company.
You can choose when and where to have this exam done. Your home, office, or the exam company’s local facility. Wherever you would feel the most comfortable.
What is the best age to get life insurance?
The best age to buy life insurance is when you first have a need for it. For most it’s after buying a house, getting married, or having children.
Your price for life insurance will go up with age. If you have any health issues that increase your risk of dying, this will also cause your price to be higher. Waiting too long to buy life insurance may cause it to be unaffordable or you may even become uninsurable for traditional life insurance.
There are many factors that determine your cost for life insurance, including health and financial status, age, gender, occupation, and lifestyle. Most people can buy life insurance, but it’s best not to wait until it’s either too late or too expensive. Even a little life insurance is better than nothing at all.
Learn more: The Perfect Age to Buy Life Insurance
What is the best life insurance?
The best life insurance will vary depending on your personal needs and financial situation. For most people, term life insurance is the best choice. It’s the most affordable type of life insurance and can be customized to meet your current budget.
Who should be your life insurance beneficiary?
Your life insurance beneficiary should be the person(s) who currently relies on your income and would benefit from the life insurance payout upon your death. It also needs to be someone over age 18. If you want to leave your policy’s death benefit to a minor, create a trust instead and name the trust the beneficiary.
What is a life insurance rider?
A life insurance rider is an add-on you can purchase (some are free) to supplement your life insurance policy with extra benefits. Common riders include child rider, premium waiver for disability rider, accidental death benefit rider, accelerated death benefit rider, and a conversion rider.
Learn more: Types of Life Insurance Riders
What is the cash value of a life insurance policy?
Cash value is a savings component featured in most permanent life insurance policies. A portion of the premium you pay gets funneled into a separate account to accumulate with interest. This amount is the cash value.
The cash value is the amount owed to you (minus any applicable fees and loan balances) if you were to surrender your permanent policy. You can also take out loans against this amount and make partial withdrawals from it.
What is a death benefit?
The death benefit is what the insurance company pays to the beneficiaries when an insured individual dies. The death benefit amount is chosen by the applicant and referred to as the coverage amount or face amount.
How do death benefit payouts work?
When an insured person dies, the beneficiaries need to file a life insurance claim with the life insurance company. A death certificate will also need to be sent in.
The insurance company will verify the information and then send out a check to the beneficiary(ies). This process typically takes about one week.
If the insured dies within the contestability period (the first two years of the policy) the claim may be delayed if the insurance company decides to investigate it.
Learn more: How Do Life Insurance Policy Payouts Work?
How often should I review my life insurance policy?
After purchasing a life insurance policy, it should be reviewed every few years and especially after any major life changing events. As your life changes, your life insurance needs may also change.
How do I change my life insurance policy?
After you apply for life insurance through Quotacy.com, you’ll be paired with a personal Quotacy agent that can help you with whatever changes you wish to make before and after the policy is activated.
If you’re in the life insurance approval process, you are able to request changes to the amount and length of coverage. It will still need to be approved by the insurance company, but an additional application won’t be needed and there are no fees.
If you already own a policy, you may be able to make changes to your coverage. It will depend on how long the policy has been active, the changes you want made and the terms and conditions set by the life insurance company.
Can I increase my life insurance policy coverage?
If you’re still in the buying process, let your personal Quotacy agent know if you want to increase the coverage amount. As long as you financially qualify, this typically is an easy adjustment if the policy has not yet been approved.
If your life insurance policy has been approved, but not yet put inforce (activated), the policy will be taken out of approved status and sent back to the insurance company with the new coverage request. This can sometimes require additional information to review depending on the coverage amount.
If your policy has already been activated (put inforce), you will likely have to reapply for a new policy, or you can choose to buy a second policy.
These whole life insurance FAQs were created based on the questions we hear most from our clients. If you have any questions about life insurance that we haven’t addressed in these whole life insurance FAQs, you can contact us here at Quotacy. Our life insurance advisors are available via email, text, or phone.
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