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Life Insurance

What is Life Insurance?

The way to think about life insurance is not as a policy where you can file claims for coverage but rather a contract with insurance brokers. If life insurance ever did have a claim, then it will be the only one filed after the policyholder passes away. At that point, anyone that is listed on the policy as a beneficiary receives the policy payout or death benefit. Life insurance policies can be customized based on the amount of coverage, the number of beneficiaries, and even the time frame for which it lasts. The policy payout is usually used for any debts or financial strains that would happen if the policyholder were to pass away, like mortgages, incomes, and college tuition. That’s the main point of life insurance –keeping your loved ones, family, or household financially secure for all time.

How Does Life Insurance Work?

Before getting into the specifics of any given life insurance policy, let’s talk about how they work because they all function pretty consistently. Regardless of its type, a life insurance policy will include a death benefit or payout, premiums or rates, and a cash value that serves as a tax-deferred saving account for the policyholder to use during their life. Life insurance premiums can be paid on a monthly basis or in a lump sum at once. These rates depend on your age, gender, medical history, and occupation. As with car insurance, some policyholders can be seen as high risk, and that can result in higher rates.

Older customers with an extensive medical history can expect to pay more premiums in a life insurance policy. Regardless of whether the insurance was permanent or temporary, the insurer will always pay the death benefit upon the death of the policyholder. When it comes to finding the best deal on a life policy, every company quotes differently. So, it’s best to compare and contrast before settling on one. The process for getting life insurance isn’t something that will take 5 minutes, keep in mind.

What Are The Different Types of Life Insurance?

You may have noticed that we mentioned that a life insurance policy could be temporary or permanent. These are the two main different types of life coverage you can purchase -term and permanent. The difference is exactly how they sound. Term life insurance lasts a finite amount of years that you set yourself. It can be anywhere from 10 to 30 years. Meanwhile, permanent life insurance is everlasting until the policyholder passes away or cancels it. Permanent life insurance is more expensive than term and offers more coverage. Those are the two most common life insurance that many new customers are referred to.

With those in mind, here are more specifics of the different types of life insurance:

  • Premiums and single premium – Premiums and rates are a regular part of any type of insurance. With life insurance, you have the option of monthly rates or a single premium. As opposed to paying overtime, the policyholder can pay it all upfront. You’ll also have the option of a return premium where you’ll pay your insurance rate and then get reimbursed at the end of the term.
  • Level or increasing term – When it comes to premiums of a term policy, you also have two options. A level term policy means that the rates stay the same while an increasing term increases as you get older. You may not have the option of paying the premium at once with term life insurance.
  • Whole or universal life – Whole life insurance is only provided for permanent policyholders, which accumulates cash value over time on a tax-deferred basis. The cash value is an amount that can be used by the policyholder during their lifetime while the policy is active. The only difference with a universal life plan is that the cash value increases with interest, and the premiums and payouts can be customized.
  • Guaranteed issue – This is a type of permanent life insurance for people with a history of medical issues that would make them difficult to insure. Due to risk, the insurance company doesn’t pay the death benefit for the first two years unless there’s accidental death. Instead, the premiums are returned to the beneficiaries of the policyholder.

There Are Three Different Types of Universal Life Insurance

Some insurancers may refer to permanent life insurance as universal life insurance as it’s the most common choice. The idea of having permanent life insurance with rates comparable to a term life policy and customizable death benefits is an appealing deal for many.

As we get into the specifics, you’ll find that there are different types of universal coverage insurance companies offer:

  • Guaranteed universal – This would be the most low-cost universal life insurance policy since it’s lower than a standard permanent plan. The cash value, however, does not build over time.
  • Variable universal – This allows the policyholder more freedom with their policy’s cash value. Not only can it increase, but policyholders will be able to invest it as they choose.
  • Indexed universal – A policyholder is able to earn a fixed or indexed rate on this universal life insurance policy.

How Can You Buy Life Insurance?

Purchasing life insurance isn’t like walking into an insurance company’s brick-and-mortar location and walking out with your vehicle or assets insured. It’s a process of qualifying and evaluation by the insurers. Quotes, are free, and you can often receive them the same day you request them. Every day, insurance companies look at potential life insurance applicants. Some applicants opt to work with a complimentary insurance broker to determine the best company and policy for their life insurance needs. There are nearly 850 life insurance companies in the United States, so there’s always something for everyone.

Here’s a guide to buying and building your own life insurance:

  • Think about how much insurance you need – How much life insurance you will need depends on your family’s or beneficiaries’ financial needs and priorities if you were to pass away and be unable to provide. Debts, income, and college tuition are some expenses you’d want them to be covered for. Many policyholders tend to set their policy limits four times their income.
  • Compare policies by shopping around – The best kind of life insurance providers are those who pay their claims in the future and have a tangible history of doing so. Quotes are free and done in one day, so it helps to receive several and compare them. Always take into count the amount of coverage and cost.
  • Apply to your desired life insurance policy – A life insurance application can be filled out online. The most crucial information you will need to have is your medical history and basic income to gauge your risk and premiums. You may have to take a medical exam and disclose information about any hazardous hobbies or occupations in a phone interview.
  • Await approval – The insurance company’s final rate they set is usually similar to the quoted amount. In a normal case, life insurance may take six to eight weeks to get approval. But if you look around, there are some insurers that may offer instant decision policies.
  • Sign and accept policy – Once your policy has been presented to you, it’s time to sign it, so it becomes active. You’ll also have the option to pay your monthly premium or a one-lump sum to get your coverage started, as is usual for permanent or universal life insurance.

Who Usually Qualifies For Life Insurance?

The short answer is that anyone can qualify for a life insurance policy if they are willing to go a little out of their budget and examine insurers closely. However, it is easier for those who are younger and with less of a medical history. They’re also more likely to receive the death benefits they would want. Even if you were to have your application rejected, you might be able to get approval from another company. If you make risky lifestyle choices like smoking cigarettes or skydiving, that can signal some riskiness to the insurance companies. That can result in the application being denied or higher rates to be insured. All this information is given to the insurance company during your interview and medical exam. Everyone qualifies for a policy somewhere.

The most common type of life insurance customers and those who usually qualify are:

  • Couples or spouses – Marriage, unions, and partnerships combine two people’s finances which raises the need for a safety net should one pass away.
  • Parents of students – Parents regularly take out a life insurance policy to ensure that their children will be supported until they go to college. And for those at a university, a life insurance policy would be wise for those who signed off on their student loans.
  • Homeowners – Homeowners will often purchase life insurance that lasts just as long as their property mortgage – 20 to 30 years.
  • Business owners – Those that run a business work with their partners to buy a life insurance policy that covers the business expenses should one of them pass away.

How Much Does Term and Permanent Life Insurance Cost?

The cost of life insurance depends on four things; health, age, lifestyle, and sex (men’s rates are higher than women’s). A term life insurance policy would cost five to fifteen times less than a permanent life insurance policy. For both, customers set their policy limits anywhere from $250,000 to $1,000,000, or at least four times their income. These are the amounts that policyholders ages 20 through 40 usually set. The average cost of life insurance around $26 a month. This was based on a 40-year-old man purchasing a 20-year term life policy.

Here’s how much the policyholders typically pay for life insurance. Note that these are averages:

  • 25 years old – A 25-year-old woman pays around $14.25 a month for $250,000 coverage limits, $21.26 a month for $500,000 coverage limits, and $34.54 a month for $1,000,000 coverage limits. A 25-year-old man tends to pay more at around $17.13 a month for $250,000 limits, $27.10 a month for $500,000 limits, and $45.18 a month for $1,000,000 limits.
  • 35 years old – As the policyholder grows older, their insurance rates increase. Now, a 35-year-old woman pays an average of $16.48 a month for $250,000 limits, $25.43 a month for $500,000 limits, and $42.61 a month for $1,000,000 limits. Meanwhile, a 35-year-old man pays $18.70 a month for $250,000 limits, $30.29 a month for $500,000 limits, and $51.72 for $1,000,000 limits.
  • 45 years old – The premiums continue to grow with 45-year-old women paying $28.41 a month for $250,000 limits, $47.52 for $500,000 limits, and $86.37 a month for $1,000,000 limits. A man of the same age group would pay $35.31 a month for $250,000 coverage, $60.78 a month for $500,000 coverage, and $113.62 for $1,000,000 coverage.

What Else Can Life Insurance be Used For?

The primary use of life insurance is to provide funds to anyone who would be affected financially from the policyholder’s death. However, there are some additional advantages to some policyholders.

Some of these opportunities are:

  • Retirement – Life insurance policies can provide funds for retirement with either a pension maximization strategy or maxed out tax-advantaged accounts.
  • Avoiding taxes – Death benefits of a life insurance policy are tax-free. Tax avoidance is having an alternate method of payment for taxes that would save you. Tax evasion, which is illegal, is allowing the tax to go unpaid altogether.
  • Lent money – Life insurance policyholders are allowed to borrow money from their insurance providers with the cash value or death benefit serving as collateral.

What is The Best Way to Shop For Life Insurance?

Buying life insurance requires you to think about your lifestyle and financial situations closely. Every insurance company quotes their life policy differently so it helps to receive a couple you can compare. The best insurer for your standard of living may be a local name rather than a national company. Ask yourself if you would financially benefit from a term or whole life insurance policy. While it may not be legally required for you to carry, life insurance is a must-have for those looking to financially protect their loved ones.

Classification Levels

Before shopping for policies, it is helpful to know what insurance companies use when crafting a policy and to determine rates.

Insurance companies use the following classifications levels for their policyholders:

Preferred Plus

People in excellent health with clean family history and perfect height-weight ratio.

Preferred

People with minor health issues that may be treatable with simple lifestyle choices.

Standard Plus

People with okay health and family history with few issues.

Standard

People with some health issues and a less-than-ideal height-weight ratio. This category is heavily influenced by family history and life expectancy.

Substandard

People with difficult health histories and recent complications including heart attacks or strokes.

Preferred Plus

People in excellent health with clean family history and perfect height-weight ratio.

Preferred

People with minor health issues that may be treatable with simple lifestyle choices.

Standard Plus

People with okay health and family history with few issues.

Standard

People with some health issues and a less-than-ideal height-weight ratio. This category is heavily influenced by family history and life expectancy.

Substandard

People with difficult health histories and recent complications including heart attacks or strokes.

When creating your policy, a company looks at several different health indicators and other factors. There really is no reason to wait until you are older to acquire a policy. In fact, young people can lock in low rates because they tend to be healthier and less of a risk.


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Life Insurance is a vital part of protecting your family in case the unexpected happens. We at Insurance Navy specialize in getting you the right amount of coverage you need. Get an Online Quote or visit one of our convenient locations today!