Finding life insurance to fit your life

Read time: 4 minutes

Many people understand the basic premise of life insurance — that it helps loved ones financially after someone dies.

And many people say they need it. An estimated 102 million uninsured and underinsured adults in the United States say they need life insurance or more of it, according to LIMRA’s newest Barometer study. And a Forbes Advisor consumer survey found that many people worry about how their family would pay bills if they died.

At the same time, many people don’t get around to making this purchase. The reasons vary from it “costs too much” to “I don’t like the medical aspect (blood work, etc.),” according to another study.

Do you think you might be underinsured? Or maybe you don’t have any life insurance and are wondering where to start. One thing you already know: One size doesn’t fit all. The best policy for you comes down to your needs and budget.

To help familiarize yourself with what can be a confusing topic, let’s review a few basics.

Q. What’s the difference between term and permanent life insurance?

A. Most insurance policies fall into two buckets: term or permanent life insurance.

Term life

Premiums: Compared with whole life policies, term life insurance tends to be more affordable. That’s because term life policies are for a set period and don’t offer cash value.
Temporary: Policies last for a set time period, such as 10, 20 or 30 years.
No cash value: You can’t borrow against or cash out a term life insurance policy.
Who it’s typically for: Term life insurance may be a fit for people who want coverage for financial obligations that last for a specific period, such as mortgages or children’s college expenses.

Permanent life

Premiums: Compared with term life policies, whole life premiums reflect coverage that lasts a lifetime and builds cash value.
Permanent: Policies can last the rest of your life as long as the premiums are paid.
Builds cash value: Policies grow cash value and once you’ve built enough, you might be able to cash out or borrow against the policy.
Permanent life insurance includes (but isn’t limited to):

whole life insurance
simplified whole life insurance
final expense/burial insurance

Who it’s typically for: Adults who want permanent coverage with a cash value feature and a way to provide a death benefit for loved ones.

Q. What’s “underwriting”?

A. Underwriting refers to how a life insurance company calculates the risks of insuring you. How a policy is underwritten affects how quickly your coverage will go into effect, whether you’ll need to take a medical exam, and the price of your premium.

Q. How many types of underwriting are there?

A. There are three main types of underwriting:

Fully underwritten life insurance

Fully underwritten policy premiums reflect coverage that lasts a lifetime and builds cash value. This application process is the most thorough — it includes a medical exam, as well as questions about your health, hobbies and family’s health history. Fully underwritten life insurance policies can take several weeks to become effective.

Simplified issue life insurance

These policies don’t require you to take a medical exam. The application process does, however, require you to answer a few health questions. With simplified issue life insurance, coverage can begin much sooner than with a fully underwritten policy — many times on the day you apply.

Guaranteed issue life insurance

Guaranteed issue policies don’t require medical exams or health questions. You can’t be turned down for coverage if you’re within the age range, typically age 40 to 85. These policies also have graded death benefits, meaning if you die within the first few years of the policy, your beneficiaries may receive only a partial payout. A guaranteed issue policy is generally active as soon as your first payment is received.

Which type of life insurance should I get?

This is where the help of a licensed insurance agent comes into play. A middle-aged person who needs income replacement will likely need something different than an older person who’s looking to leave an inheritance or cover final expenses.

Or a person might find themselves with one foot in both worlds. They might have a need for term life insurance to pay off a house and pay outstanding debts if they die. And, ideally, they’d also like permanent life insurance that lets them leave something behind for their loved ones.

If you’re looking for more value for your money, you might consider a whole life policy that offers a term life rider. Whatever you end up needing, a licensed insurance agent can help you every step of the way.