Top 10 Life Insurance FAQs
1. What is life insurance?
Life insurance is a contract between an individual (policyholder) and an insurance company, in which the insurer agrees to pay a designated beneficiary a sum of money (death benefit) upon the death of the insured person. In exchange, the policyholder pays regular premiums to the insurance company.
2. Why do I need life insurance?
Life insurance provides financial protection and peace of mind for your loved ones in the event of your death. The death benefit can be used to:
- Replace lost income
- Pay off debts, such as a mortgage or loans
- Cover funeral and burial expenses
- Fund future expenses, such as college tuition for your children
3. What types of life insurance are available?
There are two main types of life insurance:
- Term life insurance: Provides coverage for a specific period (e.g., 10, 20, or 30 years). If the insured person dies during the term, the death benefit is paid to the beneficiary. If the insured person outlives the term, the policy expires with no payout.
- Permanent life insurance: Provides coverage for the insured person’s entire life, as long as premiums are paid. Permanent life insurance policies typically include a cash value component that grows over time and can be borrowed against or withdrawn.
4. How much life insurance do I need?
The amount of life insurance you need depends on your individual circumstances and financial goals. Consider factors such as:
- Your current income and future earning potential
- Your outstanding debts, including mortgage and loans
- Your family’s living expenses and future needs
- Your savings and investments
A common rule of thumb is to purchase coverage equal to 10-15 times your annual income.
5. How much does life insurance cost?
The cost of life insurance varies based on factors such as:
- The type of policy (term or permanent)
- The coverage amount
- The length of the term (for term life insurance)
- Your age, gender, health, and lifestyle
Generally, term life insurance is more affordable than permanent life insurance. To get an accurate quote, consult with a licensed insurance agent.
6. Can I get life insurance if I have a pre-existing medical condition?
Yes, it’s possible to obtain life insurance with a pre-existing medical condition, although it may be more challenging and expensive. Insurance companies will evaluate the severity and stability of your condition, as well as your overall health, when determining your eligibility and premium rates.
7. What happens if I outlive my term life insurance policy?
If you outlive your term life insurance policy, the coverage expires and there is no payout. However, some term policies offer a conversion option that allows you to convert the policy into a permanent life insurance policy without undergoing a new medical exam.
8. Can I change my life insurance beneficiary?
Yes, you can typically change your life insurance beneficiary at any time, as long as the policy is not designated as “irrevocable.” To change your beneficiary, contact your insurance company and complete the necessary paperwork.
9. Are life insurance death benefits taxable?
In most cases, life insurance death benefits are not subject to income tax for the beneficiary. However, if the policy includes a cash value component and the death benefit exceeds the premiums paid, the excess may be taxable. Consult with a tax professional for specific guidance.
10. Can I have multiple life insurance policies?
Yes, you can have multiple life insurance policies from different insurers or the same insurer. This strategy, known as “laddering,” can provide additional coverage during specific periods or supplement an existing policy.