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NerdWallet Life Insurance
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Don't know how much you need?
What is life insurance?
Life
insurance protects anyone who depends on you financially. If you die
unexpectedly, life insurance provides money that can pay debts or offset
the sudden loss of income for your family.
Unfortunately
30% of Americans know they need more life insurance, and 25% wish that
their spouse or partner would purchase more life insurance. (Source:
LIMRA)
Why people buy life insurance?
There are a few reasons to buy life insurance:
- To protect your family. Your family depends on you. In the event of your death, your dependents need a financial cushion to get back on their feet. If you have children, you might want to cover their child care and education costs until they are adults. If you have a mortgage or other debt, you want to make sure your family is not burdened by it after you are gone.
- To protect your business. Business owners who want to ensure that their business keeps running are prime candidates for life insurance. Life insurance can help your partners, employees and heirs. Business owners also might want to consider life insurance policies for key employees.
- To protect your heirs. For high-net-worth individuals with large estates that will be subject to estate tax, life insurance can help heirs pay their taxes rather than selling off assets.
First,
choose a policy type. The two major types of life insurance are term
life and permanent life (such as whole life insurance). For the majority
of consumers, term life insurance is the right choice. Term insurance
covers you for a set amount of time, and the payout can be used to cover
any expenses in case you die. Term life insurance quotes are also the
cheapest among all life insurance policy types.
When
choosing a policy, keep your goals in mind. For example, if you are a
new parent, you want to make sure your policy can cover any child care,
education and other costs for your children. If you own a home, make
sure your spouse will be able to afford the mortgage payments without
your income.
Once you choose a
policy type, determine a policy amount that matches the obligations you
want to cover, whether it’s college tuition, replacing your income or a
mortgage.
With term life
insurance, in addition to choosing a policy amount, you will pick a
policy duration, typically 5, 10, 20 or even 30 years. Take your
longest-lasting financial obligation into account. For example, if you
have 20 years left in your 30-year mortgage, you will most likely want
to get at least a 20-year life insurance policy.
The difference between whole life insurance and term life insurance
Term
life insurance, which is best for most people, provides coverage for a
specific time period, such as 10 to 20 years. If you die within the
term, and assuming your premiums are paid up, your beneficiaries get the
payout amount.
Whole life insurance policies, a type of permanent life, cover you as long as you live and are far more expensive for a comparable payout.
Whole life policies also have an investment component built in, known as "cash value."
How to apply for life insurance
Basic
information: Companies will need your date of birth, zip code and
gender to give you a quote. The older you are, the more you will have to
pay for life insurance. Men pay more than women on average because they
generally have a lower life expectancy.
Health
information: Health information is very important when calculating life
insurance rates. To provide a life insurance quote, companies typically
will ask for basic health information such as height, weight, blood
pressure, medical conditions, medications and family health history.
Lifestyle
information: When calculating life insurance rates, companies will take
your lifestyle into account. Smokers pay much more for life insurance
than nonsmokers, for example. Similarly, people who engage in extreme
sports will probably pay more.
What happens after you apply
In order to offer final whole life or term life insurance quotes, life insurers will gather a wide variety of information.
- Interview: The insurance company will ask you questions about your medical conditions, family medical history and lifestyle.
- Health records and medical exam: Eventually, the company may ask you to sign a release for your medical records. Many policies also require a life insurance medical exam.
- Other information: Many life insurance companies get information about your medications from prescription-drug databases, and can pull information about recent life and health insurance applications you’ve made.
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