Frequently Asked Questions About Life Insurance

Life insurance provides financial protection for the people who depend on you. If something unexpected happens, life insurance can help your family maintain their standard of living, pay off debts, cover funeral expenses, fund education, and achieve long-term financial goals. It offers peace of mind knowing your loved ones will be taken care of.

Generally, the younger and healthier you are, the more affordable life insurance tends to be. Many people consider life insurance when they experience major life events like getting married, buying a home, having children, or starting a business. However, it is never too late to explore your options.

The amount of coverage you need depends on your unique situation. Common factors to consider include your income, outstanding debts (mortgage, car loans, credit cards), future expenses (college tuition, childcare), final expenses, and your family's ongoing living costs. A general guideline suggests 10-15 times your annual income, but a licensed professional can help you determine the right amount for your needs.

A beneficiary is the person or entity you designate to receive the death benefit from your life insurance policy. You can name one or multiple beneficiaries, and you can typically change your beneficiaries at any time. Common beneficiaries include spouses, children, other family members, or even charitable organizations.

The death benefit is the amount of money that the insurance company pays to your beneficiaries when you pass away. This is typically a tax-free lump sum payment that your beneficiaries can use however they choose—whether for daily expenses, paying off debts, funding education, or other financial needs.

Term life insurance is coverage that lasts for a specific period, such as 10, 20, or 30 years. It is often the most affordable type of life insurance and is ideal for covering temporary needs like a mortgage, raising children, or income replacement during your working years. If you outlive the term, the coverage ends unless you renew or convert it.

Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime, as long as premiums are paid. It features level premiums that never increase and includes a cash value component that grows over time on a tax-deferred basis. This cash value can potentially be accessed during your lifetime through loans or withdrawals.

Final expense insurance, also known as burial insurance, is a type of whole life insurance designed to cover end-of-life costs such as funeral expenses, medical bills, and other final debts. These policies typically have lower coverage amounts (usually $5,000 to $25,000) and simplified underwriting, making them accessible for seniors or those with health concerns.

Mortgage protection insurance is a type of life insurance designed to pay off your mortgage balance if you pass away. This helps ensure your family can stay in their home without the burden of mortgage payments. The coverage amount typically decreases over time as you pay down your mortgage, though some policies offer level coverage.

Yes, many people have multiple life insurance policies to meet different needs. For example, you might have a term policy to cover your mortgage and a whole life policy for permanent protection. This strategy, sometimes called "laddering," allows you to customize your coverage to match your changing financial responsibilities.

Several factors influence your premium, including: age (younger applicants typically pay less), health status and medical history, tobacco use, occupation and hobbies, coverage amount and policy type, and family medical history. Insurance companies assess these factors to determine your risk level and set your premium accordingly.

Most insurance companies offer flexible payment options including monthly, quarterly, semi-annual, or annual payments. Some policies may offer a slight discount for annual payments. You can typically choose the payment schedule that works best for your budget and financial situation.

Most life insurance policies include a grace period (typically 30-31 days) during which you can make a late payment without losing coverage. If you miss the grace period, your policy may lapse. Some permanent policies with cash value may have options to keep coverage in force using the accumulated cash value. Contact your insurance company immediately if you are having trouble making payments.

It depends on the type of policy. Term life insurance premiums are typically level for the duration of the term but may increase significantly if you renew. Whole life insurance premiums are designed to remain level for life. Some policies, like annual renewable term, have premiums that increase each year. Understanding how premiums work is important when choosing a policy.

For most individuals, life insurance premiums paid for personal coverage are not tax-deductible. However, the death benefit your beneficiaries receive is generally income tax-free. There may be exceptions for business-owned policies or certain situations. Consult with a tax professional for advice specific to your situation.

Not always. While traditional life insurance policies often require a medical exam, many companies now offer no-exam policies. These may include simplified issue policies (health questions but no exam) or guaranteed issue policies (no health questions or exam). No-exam policies may have higher premiums or lower coverage limits, but they provide options for those who prefer to skip the exam.

Absolutely. There are many life insurance options designed specifically for seniors, including final expense insurance and guaranteed issue policies. While premiums may be higher at older ages, coverage is available for most seniors. These policies can help cover funeral costs, medical bills, or leave a legacy for loved ones.

The application process typically involves completing an application form with personal and health information, possibly answering health questions or completing a phone interview, and potentially undergoing a medical exam (depending on the policy type). The insurance company reviews your application and determines your eligibility and premium. The process can take anywhere from a few days to several weeks depending on the policy type.

Yes, child life insurance policies are available and can provide coverage for your children. These policies are typically whole life insurance with small face amounts. Some parents choose child life insurance to lock in low premiums, provide a financial gift for adulthood, or ensure future insurability regardless of health changes.

Being denied life insurance in the past does not mean you cannot get coverage now. Insurance companies have different underwriting guidelines, and your situation may have changed. There are also guaranteed issue policies that accept all applicants regardless of health. A licensed professional can help you understand your options and find coverage that works for you.

Beneficiaries can typically choose how to receive the death benefit. Options often include a lump sum payment (most common), installment payments over time, or an interest-bearing account. The best option depends on the beneficiary's financial situation and needs. A financial advisor can help beneficiaries make this decision.

In most cases, life insurance death benefits are received income tax-free by beneficiaries. However, there can be exceptions, such as if the policy was transferred for value or if the death benefit is paid to an estate and subject to estate taxes. Consult with a tax professional for guidance specific to your situation.

The contestability period is typically the first two years after a policy is issued. During this time, the insurance company can investigate and potentially deny a claim if there was material misrepresentation on the application. After the contestability period, claims are generally paid as long as premiums were kept current, except in cases of fraud.

While most claims are paid, there are situations where a claim may be denied. Common reasons include death during the contestability period with material misrepresentation, death by suicide within the suicide exclusion period (typically 2 years), lapsed policy due to non-payment of premiums, or death resulting from excluded activities. Honest and complete application information helps ensure claims are paid.

If you outlive your term life insurance policy, the coverage simply ends. You will not receive any money back (unless you have a return of premium rider). However, many term policies offer the option to renew (usually at a higher premium) or convert to a permanent policy without a new medical exam. It is important to understand your options before your term ends.