Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime.
The life insurance application must accurately disclose the insured’s past and current health conditions and high-risk activities to enforce the contract.
Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short- or long-term needs of the person to be insured, the major choice of whether to select temporary or permanent life insurance is important to consider.
Term life insurance lasts a certain number of years, then ends. You choose the term when you take out the policy. Common terms are 10, 20, or 30 years. The best term life insurance policies balance affordability with long-term financial strength.
Permanent life insurance stays in force for the insured’s entire life unless the policyholder stops paying the premiums or surrenders the policy. It’s typically more expensive than term.
|Company||AM Best Rating||Coverage Capacity||Maximum Issue Age||Policies Offered|
|Nationwide Best Overall||A+||Over $5 million||85||Term, whole, UL, IUL, VUL, final expense|
|Protective Best for Term||A+||Over $5 million||85||Term, whole, UL, IUL, VUL|
|MassMutual Best for Financial Stability||A++||Over $5 million||90||Term, whole, UL, VUL|
|Mutual of Omaha Best for Living Benefits||A+||Over $5 million||85||Term, UL, IUL, final expense|
|Guardian Fewest Complaints||A++||Over $5 million||90||Term, whole, UL, VUL|
|USAA Best for Military||A++||Over $5 million||85||Term, whole, UL|
|New York Life Best for Seniors||A++||Over $5 million||90||Term, whole, UL, VUL|
Term life insurance differs from permanent life insurance in several ways but tends to best meet the needs of most people. Term life insurance only lasts for a set period of time and pays a death benefit should the policyholder die before the term has expired. Permanent life insurance stays in effect as long as the policyholder pays the premium. Another critical difference involves premiums—term life is generally much less expensive than permanent life because it does not involve building a cash value.
Before you apply for life insurance, you should analyze your financial situation and determine how much money would be required to maintain your beneficiaries’ standard of living or meet the need for which you’re purchasing a policy.
For example, if you are the primary caretaker and have children 2 and 4 years old, you would want enough insurance to cover your custodial responsibilities until your children are grown up and able to support themselves.
You might research the cost of hiring a nanny and a housekeeper or using commercial child care and cleaning services, then perhaps add some money for education. Include any outstanding mortgage and retirement needs for your spouse in your life insurance calculation. Especially if the spouse earns significantly less or is a stay-at-home parent. Add up what these costs would be over the next 16 or so years, add more for inflation, and that’s the death benefit you might want to buy—if you can afford it.
Burial or final expense insurance is a type of permanent life insurance that has a small death benefit. Despite the names, beneficiaries can use the death benefit as they wish.
Many factors can affect the cost of life insurance premiums. Certain things may be beyond your control, but other criteria can be managed to potentially bring down the cost before applying.
After being approved for an insurance policy, if your health has improved and you’ve made positive lifestyle changes, you can request to be considered for change in risk class. Even if it is found that you’re in poorer health than at the initial underwriting, your premiums will not go up. If you’re found to be in better health, then you can expect your premiums to decrease.
Think about what expenses would need to be covered in the event of your death. Things like mortgage, college tuition, and other debts, not to mention funeral expenses. Plus, income replacement is a major factor if your spouse or loved ones need cash flow and are not able to provide it on their own.
There are helpful tools online to calculate the lump sum that can satisfy any potential expenses that would need to be covered.
Life insurance applications generally require personal and family medical history and beneficiary information. You will also likely need to submit to a medical exam. You will need to disclose any preexisting medical conditions, history of moving violations, DUIs, and any dangerous hobbies such as auto racing or skydiving.
Standard forms of identification will also be needed before a policy can be written, such as your Social Security card, driver’s license, or U.S. passport.
When you’ve assembled all of your necessary information, you can gather multiple life insurance quotes from different providers based on your research. Prices can differ markedly from company to company, so it’s important to take the effort to find the best combination of policy, a company rating, and premium cost. Because life insurance is something you will likely pay monthly for decades, it can save an enormous amount of money to find the best policy to fit your needs.
There are many benefits to having life insurance. Below are some of the most important features and protections offered by life insurance policies.
Most people use life insurance to provide money to beneficiaries who would suffer a financial hardship upon the insured’s death. However, for wealthy individuals, the tax advantages of life insurance, including the tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits, can provide additional strategic opportunities.
The death benefit of a life insurance policy is usually tax-free. 1 Wealthy individual sometimes buy permanent life insurance within a trust to help pay the estate taxes that will be due upon their death. This strategy helps to preserve the value of the estate for their heirs.
Tax avoidance is a law-abiding strategy for minimizing one’s tax liability and should not be confused with tax evasion, which is illegal.
Life insurance provides financial support to surviving dependents or other beneficiaries after the death of an insured policyholder. Here are some examples of people who may need life insurance: