Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.



Life Insurance 101


Understand Life Insurance in 5 Minutes

  • 41,000,000 Americans say they need life insurance coverage but do not have it.
  • Half of Americans say they don’t have life insurance coverage because they believe it’s too expensive.
  • Half of Americans also believe the cost of life insurance is three times higher than it actually is.

Step 1. Why have Life Insurance?
Step 2. How does Life Insurance work?
Step 3. How much Life Insurance do I need?
Step 4. How is Life Insurance priced?
Step 5. How do I get approved for Life Insurance?

Step 1. Why have Life Insurance:

The # 1 reason people need life insurance is to replace their income if they were to die.

  • Do you have people that depend on your income?
  • Are you the breadwinner of your family?
  • Do you help cover some of the family expenses?

Imagine … what would happen to your family if you were not around?

Step 2. How Life Insurance works:

First, you decide how much life insurance protection you need and how long that protection will be guaranteed. Then you need to apply for coverage and get approved.

Once approved, you’ll make a small monthly premium payment to the life insurance company. If you die at any time while your life insurance protection is active, the life insurance company will pay out a large benefit payment to the person or people of your choice.

  • Every cause of death is covered, with the exception of suicide in the first two years.
  • The benefit amount is paid out income tax-free to the person of your choice in one lump sum payment upon producing your death certificate.

Step 3. How much Life Insurance do I need:

This is really a personal choice.

Do you want to leave your family a year’s worth of breathing room, or do you want to make sure they’re taken care of for the rest of their lives?

To be fully covered, I’d recommend that you multiply your annual income by the number of years you have left until retirement and then divide that number in half.

  • This is assuming that half of your income goes to taxes and your own personal expenses.
  • This is also assuming that you are saving money for retirement and that most of your obligations will be over in your retirement years.

I think it’s very acceptable not to be fully covered as long as you and your spouse have a plan. Leaving your spouse a few years of breathing room might be an acceptable strategy if it means having more money to save for retirement. It just means that your spouse may have more hardships if you die unexpectedly. But even in this crazy world, we find ourselves living in, odds are that you will outlive your policy. It’s good to have protection, but you don’t want to be overinsured. The most important factor is to have a life insurance policy that comfortably fits within your budget and leaves you room to save for your future.

Step 4. How Life Insurance is priced:

  1. The risk of dying.
  2. The amount of life insurance protection.
  3. How long is your protection guaranteed by the life insurance company?

A - Risk of dying

Risk Factors:

  • Age - the younger you are, the less expensive life insurance is.
  • Gender - Women tend to live longer than men, so they pay less.
  • Health - even people with a history of health issues can get life insurance.
  • Lifestyle - do you smoke, take great risks, or have a dangerous job?
  • Family history - heredity can play a small role in the price of your policy.

B - The amount of life insurance protection.

  • The more coverage you have, the more expensive your policy will cost.

C - How long is your protection guaranteed by the life insurance company?

  • You can have your coverage guaranteed anywhere from 10 years to the rest of your life.
  • The longer your coverage is guaranteed, the more it will cost.
  • You can cancel at any time; the obligation is only on the life insurance company’s end.

Step 5. How to get approved for Life Insurance:

While life insurance agents can provide you with a quote, the underwriting department at the life insurance company will determine the actual cost of your coverage. To get approved for a life insurance policy, you must complete an application for coverage and go through the underwriting process.

The underwriting process could be as simple as completing an application and then waiting five minutes for approval, but to get the lowest possible price, it will usually require an exam, and the insurance company may order your medical records. Everything is paid for by the insurance company, and there is no cost to you. Your first payment isn’t made until your policy is approved and you decide to accept it. If for any reason, you are unsatisfied with the policy, you can cancel it at any time. That even means before making your first payment.

Conclusion

When it comes to the cost of insurance, you have a few options to weigh:

  1. What is my monthly budget?
  2. Convenience vs. Cost
  3. Coverage Amount vs. the number of years you want to guarantee your coverage for.

Term life insurance is usually very affordable. Especially 10-year, 15-year, and 20-year term policies. You’ll get the life insurance your family needs for the period you’ll need it most, during your income-earning years.

Once approved for your coverage, you can choose to have it guaranteed for anywhere from 10 years to the rest of your life. This means that the coverage amount you choose and the rate you are approved for will stay the same for the time period you select. Though the insurance will be obligated to you and your family for the life of your coverage, you can cancel at any time without penalty. You simply stop paying, and the coverage will end.

I hope this was very informative. Please feel free to reach out if you have any questions or would like to see how affordable term life insurance can be for you and your family.

Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.