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Life insurance offers a guaranteed benefit to the policyholder if they die while the insurance is in place. This means the beneficiaries you list on a life insurance policy will be protected should you pass away — for example, the payout could cover the loss of your income or any debts or business expenses left behind.

Before you take out a life insurance policy, it’s essential to compare quotes from multiple providers. One way to do this is through Policygenius, an online insurance marketplace partnered with Credible.

Here’s what you should know about life insurance:

What is life insurance?

Life insurance, at its core, is a contract between the policyholder and the insurer. On the policyholder side, you promise to make premium payments to the insurance company, which cover your part of the cost of the insurance policy.

Your insurer will set your premium costs based on a number of factors, including:

  • Age and health
  • Death benefit amount
  • Length of the policy

In return for regular payment of your premiums, you’re guaranteed a cash payout that will go to your beneficiaries — this is known as a death benefit. Beneficiaries who receive a death benefit can spend it on whatever they wish without restrictions.

Before purchasing a life insurance policy, be sure to shop around and compare quotes. You can easily compare quotes from top life insurance companies through Policygenius.

Get free quotes now

Visit Policygenius

Perks of working with Policygenius
  • Save up to 40% by comparing quotes from top insurance companies

  • Get help scheduling a medical exam, filling out paperwork, and negotiating with the insurance company at no extra cost

  • Find the best policy for you, including no-med options

  • Your information is kept private and is never sold to outside insurance agents

  • If you need help with anything more, customer service is just a phone call or email away

Who needs life insurance?

While not everyone needs life insurance, there are some situations where it could be a good idea. Here are a few of them:

  • Someone depends on your income. This is one of the most common reasons for purchasing life insurance. If your children, spouse, or dependent adult relatives rely on your income, life insurance can protect them from the potential loss of your income.
  • You own a business. Business owners might need a life insurance policy in place to protect their business and their family. This could help ensure that your business can continue running without you at the helm or it could provide the cash necessary for your family to dismantle or sell the business without taking a loss.
  • You have debt. After you die, any debt that’s solely in your name will be paid off using your estate funds. If you had debts that were cosigned with another individual, those debts will become their responsibility after your death. Either scenario could create a financial burden for your heirs or cosigner. However, if you have a life insurance policy large enough to pay off your debts, your estate or cosigner won’t be on the hook.

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What types of life insurance are offered?

There are two basic types of life insurance — term life insurance and whole life insurance. Here’s how they work:

Term life insurance

This kind of insurance only covers a specified time frame, generally ranging from one to 30 years. If you have a term life insurance policy, it will only pay out a death benefit if you pass away during the term.

At the end of the term, you have several options:

  • Let the insurance lapse
  • Renew the insurance for an additional term
  • Convert the policy into whole life insurance, which will pay out no matter when you pass away
Keep in mind: If you outlive the term and don’t renew or convert your policy, your beneficiaries won’t receive a death benefit when you die.

There are also several variations of basic term life insurance, including:

  • Level term life insurance: With this kind of policy, the death benefit will remain the same throughout the term — meaning your beneficiaries will receive the full amount so long as you passed away during the policy’s term.
  • Decreasing term life insurance: Unlike with level term, the amount of your death benefit will steadily drop under a decreasing term. This means your beneficiaries will receive less money if you die in year 28 of a 30-year term than if you died in the fifth year.
  • Renewable term life insurance: If you have this type of policy, you can renew it after the initial term expires — even if you wouldn’t otherwise be able to qualify for a new term because of age or health. However, you might end up paying a higher premium with the renewed policy than you paid under the initial term.
  • Convertible term life insurance: This kind of term life insurance policy will let you convert to a whole life insurance policy without requiring a health or medical screening or additional underwriting. Just keep in mind that your premiums will likely go up since whole life insurance costs more.

Whole life insurance

Unlike term life insurance, whole life insurance doesn’t have a specific expiration date. As long as you pay your premiums, your beneficiaries will receive a death benefit no matter how long you live.

This also means whole life insurance is more expensive than term life insurance since the insurance company is taking on the 100% certainty of paying out a death benefit.

Keep in mind: Life insurance companies generally charge younger policyholders more than is necessary to pay their claims, then invest the excess amount to level out the cost of premiums for older policyholders.

However, once these excess payments reach a certain amount, younger policyholders can access them as a cash value — and might be able to take a loan from them in the future.

Here are a few variations of basic whole life insurance you might come across:

  • Ordinary whole life insurance: This type of whole life insurance provides both a death benefit and a savings account that can grow with any dividends you receive from the insurance company.
  • Universal whole life insurance: If you have this kind of policy, you can increase your death benefit if you pass a medical examination. You’ll also have the option to pay your premiums out of the cash value you’ve accumulated.
  • Variable whole life insurance: With this kind of policy, you’ll get a death benefit along with a savings account that you can invest in a variety of assets, such as stocks and savings bonds. While you might be able to accumulate more cash value and increase your death benefit if your investments do well, you also run the risk of both decreasing if the investments do poorly.
  • Variable-universal whole life insurance: This product combines the flexibility of universal life policies and the investment opportunities of variable life policies. You can adjust your premium and increase your death benefit if you pass a medical exam, and you’ll also have investment opportunities.

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Term life vs. whole life insurance

If you’re comparing term life insurance and whole life insurance, here are several important points to keep in mind:

 Term life insuranceWhole life insurance
  • Level term
  • Decreasing term
  • Renewable
  • Convertible
  • Ordinary
  • Universal
  • Variable
  • Variable-universal
DurationTerm only
(typically 1 to 30 years)
Entire life
PremiumLower costHigher cost
Cash valueNoYes
Loans or withdrawalsNonePotentially available after buildup of cash value

Average life insurance rates

The average cost of life insurance varies widely and depends on your:

  • Age
  • Gender
  • Policy type
  • Health
  • Behaviors, such as smoking and risky hobbies
For example: A 30-year-old male in excellent health who doesn’t smoke might expect to pay about $34.10 per month under a 20-year term life insurance policy worth $500,000. For a non-smoking, 30-year-old woman in excellent health, the average cost would be a little less at $27.40 per month, according to Haven Life.

For a $500,000 whole life insurance policy that will pay up until age 100, the average cost would go up to $422 per month for a 30-year-old, non-smoking man. For a non-smoking, 30-year-old woman, the cost would be $368 per month, according to Insurance and Estates.

Because the cost of life insurance can vary so much, it’s essential to shop around and compare quotes from multiple providers. You can do this easily through Policygenius.

Get free quotes now

Visit Policygenius

Perks of working with Policygenius
  • Save up to 40% by comparing quotes from top insurance companies

  • Get help scheduling a medical exam, filling out paperwork, and negotiating with the insurance company at no extra cost

  • Find the best policy for you, including no-med options

  • Your information is kept private and is never sold to outside insurance agents

  • If you need help with anything more, customer service is just a phone call or email away

How do I apply for life insurance?

Before you apply for life insurance, it’s important to get quotes from multiple insurers to find the right product for you — such as through PolicyGenius. If you find an insurer you like, you’ll need to fill out an application. During this process, you’ll typically need to provide your:

  • Financial information, such as your salary and current debts
  • Current and past medical diagnoses
  • Current and past prescriptions
  • Family health history
  • Beneficiary information
  • Contact information for your primary care physician

After you’ve completed the initial application, you might also need to undergo a medical exam. Once this is done, the insurer will give you an official quote stating how much you’ll pay in premiums.

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Life insurance frequently asked questions

Here are the answers to several common questions regarding life insurance:

How much life insurance should I buy?

To figure out the right death benefit amount for you, estimate how much money you expect your beneficiaries will need to:

  • Cover your burial or cremation expenses
  • Pay off your debts
  • Use as regular income

Add these amounts together, then subtract the financial resources your beneficiaries will have, such as Social Security or other assets. This will show you how much life insurance you’ll likely need.

What is a life insurance rider?

Insurance riders are additional benefits that are added on top of an insurance policy for an additional cost. Some common life insurance riders include:

  • Waiver of premium: Will pay your premiums if you become disabled
  • Guaranteed insurability: Permits a death benefit increase without requiring a medical exam

How do I compare life insurance companies?

Not all insurance companies are the same, which is why it’s critical to do your research before buying a police. Be sure not to only compare products and costs but also the financial health of the company.

Here are a couple of ways to vet an insurance company:

  1. Choose an insurer who is licensed in your state. This way, your state insurance department can help you if there’s a problem.
  2. Check the financial solidity of the company. There are five agencies that rate the financial strength of insurance companies, all of which can be found here. Be sure to check with the agencies — not the insurer itself — to see how well the company is rated.

What are other benefits of life insurance?

In addition to protecting your beneficiaries, life insurance also offers other benefits. For example:

  • Life insurance proceeds are generally free from taxes.
  • The payout from your policy won’t be probated so long as your beneficiaries are alive when you pass away.
About the author
Emily Guy Birken
Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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