Life Insurance Plans
Life Insurance
What is Life Insurance?
A life insurance policy is a contract between an insurance company and a policyholder that provides financial security for the policyholder’s loved ones after their death. In exchange for paying premiums, the insurance company will pay a sum of money to the policyholder’s beneficiaries.
The Different Types of Life Insurance
Term Life Insurance
A policy that lasts for a set period of time, usually 10–40 years. If the policyholder dies during the term, their beneficiaries receive a tax-free death benefit check. Term life insurance is often cheaper than other types of life insurance, but some policies may allow coverage to continue after the term ends for an increased premium.
Universal Life Insurance
Another permanent policy that can be less expensive than whole life insurance because it offers flexible premiums. Universal life policies also include an investment savings component and loan options.
Whole Life Insurance
A permanent policy that lasts the policyholder’s entire life, as long as they continue to pay premiums. In addition to the death benefit, whole life insurance also builds up a tax-deferred cash value over time that the policyholder can borrow against.
Variable Life Insurance
A permanent policy that can help meet certain insurance needs, investment goals, and tax planning objectives. Variable life policies use separate accounts that can include a variety of investment funds, such as stocks, bonds, and money market funds.
Protect Your Family With Life Insurance.
What Life Insurance Covers
Unlike other insurance policies, which typically dictate how the policyholder can use a claim payout, life insurance benefits can cover a wide variety of expenses. In many cases, policyholders invest in a policy to replace their income and ensure that their beneficiary can meet financial obligations, including:
- End-of-life expenses, such as funeral and burial costs
- Mortgage payments
- Tuition payments
- Personal debt, including outstanding loans or credit card bills
- Day-to-day expenses, like groceries
Financial obligations aren’t the only way to use death benefit funds, however. Some individuals choose to open a life insurance policy to build an inheritance for their children or make a charitable donation to the policyholder’s organization of choice.
Depending on the policy you choose, you may also be able to use the funds to manage expenses while you’re alive. For instance, if you have a whole or universal life policy, your insurer will likely let you borrow against it to fund expenses like your child’s college tuition or make a down payment on a house.
However, keep in mind that if you do borrow against your account, the full death benefit may not be available if you die before paying back the funds.
What Life Insurance Doesn’t Cover
Life insurance covers most causes of death, including natural and accidental causes, suicide, and homicide. However, some caveats may prevent your beneficiaries from receiving their payout.
That’s why it’s important to discuss life insurance coverage limitations with your agent or broker before purchasing a policy.
The two common reasons why an insurer may deny a life insurance claim are a lapse in payment or misrepresentation of the insured’s health.
The following are additional reasons why an insurer may deny a claim:
High-risk activities. Some providers will deny claims if the insured dies while engaging in a potentially perilous activity, like skydiving.
Misrepresented or omitted health information. This is particularly true during the contestability period, which is typically a two-year window after the policy begins.
Circumstances of the death. For instance, if the insured dies by homicide, the insurer may not cover the claim if the beneficiary is involved in the victim’s death.
Suicide clause. Included in many life insurance policies, this clause voids coverage if the covered individual dies by suicide within a specific period, often two years, after opening a policy.
Factors That Impact the Cost of Life Insurance
Life insurance costs vary from person to person, as is the case with most insurance policies. Premiums are based on risk assessments from insurance companies. Here are a few factors that may impact your life insurance premiums.
01
Age
One of the leading factors in your life insurance premiums is your age. Life insurance is significantly less expensive for younger individuals, particularly those who are in generally good health. As you get older, premiums on a new policy will increase.
02
Health
Healthier individuals often receive lower rates than unhealthy people or those at higher risk for health problems. Your insurer may look for proof of pre-existing conditions or serious illnesses, like cancer or heart disease, to determine risk. They may also look a health metrics, like weight, blood pressure, and cholesterol levels.
03
Gender
Historically, men have paid higher rates than their female counterparts. This is because men have a shorter life expectancy than women. This leads many life insurance companies to charge men higher premiums.
04
Smoking and Tobacco Use
According to the Centers for Disease Control and Prevention (CDC), smoking and tobacco use can lead to numerous health conditions, including asthma, cancer, chronic obstructive pulmonary disease (COPD), heart attacks, and strokes. As such, smoking increases your premium payments.
05
Policy Type
The type of policy you choose can drastically affect your life insurance premium. Term life insurance policies are typically cheaper, with longer-term policies costing slightly more than short-term ones. Permanent life insurance policies often cost more because coverage lasts for the insured’s entire life.
06
Occupation and Hobbies
Some occupations and hobbies can have a higher risk of death. For example, truck drivers, construction workers, and law enforcement officers have a higher risk of fatal injury. Some hobbies, like skydiving or scuba diving, also increase the chance of death. If you’re engaged in a high-risk activity, whether it’s occupational or leisure, you may pay a higher premium.
Life Insurance Risk Categories
Your life insurance premiums are based on your assigned risk category. There are four main categories for non-smokers. There are also four for smokers that are similar in name and qualification.
Preferred Plus
Plus is the diamond tier, reserved for those who are currently in excellent health. These individuals fall within normal ranges for weight, blood pressure, and cholesterol and have a clean bill of health. They don’t have any parents or siblings who died from cancer or heart disease before the age of 60. There is no record of risky behaviors, and their driving record has no convictions for moving violations, collisions, or drunk driving.
Preferred
if you are generally in good health overall but closer to the upper limits when it comes to your weight-to-height ratio or your blood pressure. Just as with the Preferred Plus class, there can be no history of death from heart disease or cancer by a close family member under the age of 60.
Standard Plus
Individuals in the Standard Plus category may be receiving treatment for a medical diagnosis, but all of their health metrics are still within the normal range.
Standard
Most people fall into the Standard group. Some allowances are made for medical treatments or for being overweight, as well as for the death of one close family member before 60 from cancer or heart disease.