Life insurance is a contract between a policy owner and an insurance company. In exchange for required premium payments, the insurer pays a death benefit to the named beneficiary when the insured person dies, subject to the policy’s terms, exclusions, and conditions.
Life insurance generally falls into two broad categories:
These categories include different policy types, features, costs, guarantees, and coverage periods.
Tax and estate consequences can vary. Consult a qualified U.S. tax or legal professional about your circumstances.
Term life insurance provides coverage for a specified period, such as 10, 20, or 30 years.
If the insured person dies during the covered term while the policy is in force, the insurer pays the death benefit to the named beneficiary, subject to policy terms.
Term coverage is often used for:
Term policies generally do not accumulate cash value.
Permanent life insurance is designed for long-term or lifetime protection, provided the policy remains in force and its funding requirements are satisfied.
Many permanent policies include a cash-value component that may accumulate over time. Premiums are generally higher than those for comparable term insurance, particularly during earlier policy years.
Permanent options may include whole life, universal life, and policies with indexed or variable features.
Term coverage may offer lower initial premiums and straightforward protection, but coverage may end when the term expires.
Renewal premiums may increase, and conversion rights can have deadlines or product restrictions.
Whole life insurance may provide lifetime protection, a specified death benefit, structured premiums, and a cash-value component.
Some values may be guaranteed while others may not be. Review the policy and illustration carefully.
Universal life may offer flexibility in premium payments and death-benefit amounts within the policy’s limits.
Performance can depend on premium payments, insurance costs, charges, credited interest, withdrawals, and loans.
Term: Coverage for a specified term.
Permanent: Designed for long-term or lifetime protection while funding requirements are satisfied.
Term: Typically lower initial premiums and generally no cash value.
Permanent: Typically higher initial premiums and may accumulate cash value.
Term: Temporary financial protection for defined obligations.
Permanent: Long-term protection that may include additional policy features.
There is no single coverage amount that works for everyone. Consider:
A needs-based calculation can help estimate the difference between available resources and anticipated obligations.
Life insurance may be appropriate if you:
Replacing the work of a stay-at-home parent or unpaid caregiver can also create significant household expenses.
Group life insurance offered through an employer can be valuable, but it may not provide enough coverage or remain in place after you leave the job.
A rider changes or adds coverage to a life insurance policy, usually for an additional premium.
Available riders may include:
Names, eligibility requirements, costs, definitions, availability, and exclusions vary by insurer and state.
Some policies require a medical examination, while others use simplified or accelerated underwriting.
Life insurance pays a death benefit to the named beneficiary when the insured person dies while the policy is in force, subject to the policy’s terms, conditions, and exclusions.
Term insurance provides coverage for a specified period and generally does not accumulate cash value. Permanent insurance is designed for long-term or lifetime coverage and may include a cash-value component.
Consider your income, mortgage, debts, dependents, household expenses, education goals, existing insurance, available savings, and how long financial support may be needed. The appropriate amount differs for every household.
Not always. Some policies require an examination, while others use simplified or accelerated underwriting. Requirements depend on the insurer, policy type, coverage amount, age, and health history. No-exam coverage is not necessarily guaranteed issue.
A beneficiary is the person or entity designated to receive the policy’s death benefit. A policy may allow primary and contingent beneficiaries and may permit the benefit to be divided among multiple beneficiaries.
The policy owner can generally change a revocable beneficiary. Changing an irrevocable beneficiary may require that beneficiary’s consent. Rights and requirements may vary under applicable state law.
Term life insurance generally does not accumulate cash value. Its primary purpose is to provide death-benefit protection during the specified term.
Some term policies include a conversion option. The policy may limit when conversion is available and which permanent products may be selected. Review deadlines and conversion provisions carefully.
The policy may lapse or terminate when required premiums are not paid. Permanent policies may have provisions that affect what happens when cash value is available, but relying on cash value can reduce benefits or increase lapse risk.
Unpaid policy loans, accrued interest, and withdrawals can reduce a permanent policy’s cash value and death benefit. They may also increase the risk of the policy lapsing and can have tax consequences.
Yes. Life insurance companies, policies, and insurance producers are primarily regulated at the state level. Consumers can verify licensing and seek assistance through their state department of insurance.
Review your life insurance after significant changes such as:
