Your Life Insurance FAQs Answered

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.

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.

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.

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?

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?

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

Learn more: Differences Between Term vs Permanent Life Insurance Policies

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.

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.

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

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.

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.

Learn more: Is Guaranteed Issue Life Insurance a Good Option?

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.

Learn more: Do I Need Individual Life Insurance if I Have Group 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

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

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

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?

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

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.

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.

Learn more: What Is No Medical Exam Life Insurance? Accelerated Underwriting?

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.

Learn more: Can My Doctor Perform My Life Insurance Medical Exam?