30+ life insurance companies. All in one place.
- What is life insurance?
Life insurance provides a payout after your death to the people you designate as beneficiaries. It’s an important safety net if anyone depends on you financially. The life insurance payout can pay debts such as a mortgage, replace your income and provide college tuition funds.
- Who needs life insurance?
NerdWallet recommends life insurance for anyone who has loved ones who depend on them financially. This includes working or stay-at-home parents, homeowners who have a mortgage, business owners and others.
A Guide to Who Needs Life Insurance
Term life is the the best option in many cases, but permanent life insurance might be the right choice in certain scenarios.
Life insurance can fill a wide variety of needs, including covering the finite years of a mortgage and protecting the interests of a special-needs child who will need financial support after you’re gone.
In fact, although, 70% of Americans consider life insurance a necessity for themselves, 41% have no life insurance at all, according to 2017 statistics from the industry groups Life Happens and LIMRA.
Here’s a guide to who needs life insurance and what kind of policy likely works best in each situation. You can get life insurance quotes online to compare prices.
- What’s the difference between whole and term life insurance?
Term insurance covers you for a set amount of time and is sufficient for most people. Among the various types of life insurance available, term life insurance quotes are the most affordable. Whole life insurance pays out no matter when you die, and builds cash value that you can access.
The Differences Between Term and Whole Life Insurance
Term life insurance is easier to understand and costs much less than whole life insurance, but it has an end date.
Buying life insurance now provides a financial safety net for your dependents later if you’re not around to take care of them. After you’re gone, your family can use the proceeds to cover funeral costs, mortgage payments, college tuition and other expenses.
There are two main types of life insurance:
Term life insurance is the easiest to understand and has the lowest prices. You can get term life insurance quotes online.
Permanent insurance is more complex and tends to cost more than term, but it offers additional benefits. Whole life is the most well-known and simplest form of permanent life insurance. Other kinds of permanent life insurance include universal, variable and variable universal.
Term life insurance explained
Term life insurance provides coverage for a certain time period. It’s often called “pure life insurance” because it’s designed only to protect your dependents in case you die prematurely. If you have a term policy and die within the term, your beneficiaries receive the payout. The policy has no other value.
You choose the term when you buy the policy. Common terms are 10, 20 or 30 years. With most policies, the payout, called the death benefit, and the cost, or premium, stay the same throughout the term.
When you shop for term life:
- Choose a term that coincides with the years you’ll be paying the bills and want life insurance coverage in case you die early.
- Buy an amount your family would need if you were no longer there to provide for them. The payout could replace your income and help your family pay for services you perform now, such as child care.
Ideally, your family’s need for life insurance will end around the time the term expires: Your kids will be on their own, you’ll have paid off your house, and you’ll have plenty of money in savings to serve as a financial safety net.
All of the best life insurance companies sell term life, so it’s easy to find rates.
» COMPARE: NerdWallet’s life insurance comparison tool
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Whole life insurance explained
Like all permanent life insurance policies, whole life provides lifelong coverage and includes an investment component known as the policy’s cash value. The cash value grows slowly, tax-deferred, meaning you won’t pay taxes on its gains while they’re accumulating.
You can borrow money against the account or surrender the policy for the cash. But if you don’t repay policy loans with interest, you’ll reduce your death benefit, and if you surrender the policy, you’ll no longer have coverage.
Like all permanent life insurance policies, whole life provides lifelong coverage and includes an investment component.
Although it’s more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here’s why:
- The premium remains the same for as long as you live
- The death benefit is guaranteed
- The cash value account grows at a guaranteed rate
Some whole life policies can also earn annual dividends, a portion of the insurer’s financial surplus. You can take the dividends in cash, leave them on deposit to earn interest or use them to decrease your premium, repay policy loans or buy additional coverage. Dividends are not guaranteed.
- How are life insurance quotes calculated?
Life insurance companies use life expectancy as the basis for determining rates. Anything that could shorten your life expectancy will typically lead to a higher price. Your age, gender, health conditions and family’s health history are all taken into consideration. More: Average life insurance rates
- Can I get life insurance if I have a medical condition?
Don’t let a health condition stop you from getting life insurance quotes. 80% of people overestimate the cost of term life insurance. Life insurance is widely available to people with medical conditions. More: Life insurance with a medical condition
- What information is required when applying for term life insurance?
You’re typically asked about your current and past health conditions, and your family health history. The insurer may ask for your consent to get your medical records and may ask you to take a life insurance medical exam. Insurers will also check other data sources to determine term life insurance quotes. More: What you need to apply for term life insurance
- If you are covered under a group life insurance policy through your employer, do you still need a personal policy?
It is generally a good idea to have your own life insurance policy outside the coverage provided by your employer. The policy through your employer is likely not enough and typically ends if you leave the job. More: Group life insurance through work
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