Life insurance is a type of insurance that provides money to your chosen beneficiary when you die. You choose a life insurance company that offers a type of policy and death benefits that you want, apply, and if you are accepted the insurance company promises to provide the specified amount of money to your beneficiary (this can be a relative, loved one, or even an organization) when you die, as long as you paid the required premiums.
This money is often used to cover burial expenses and replace lost income. For example, if the primary wage earner in a family dies the money would help the remaining family members pay their bills.
If you want more information read our guide on how life insurance works.
Types of Life Insurance Policies
There are generally two types of life insurance: permanent and term life. Examples of permanent life insurance policies are universal and whole life. Read on for information on the various types.
What Is Term Life Insurance?
Term life insurance is a kind of temporary life insurance. A term life insurance policy is defined by how long it remains active, or its term. A term can generally be as short as a year or may last 30 years. Term policies may also provide the option of being converted to a permanent life insurance policy or renewed for another term.
For more information, read our term life insurance guide.
What Is Permanent Life Insurance?
A permanent life insurance policy is designed to be a life insurance policy for the long haul. These policies generally contain two parts: the death benefit and the cash value. The cash value can work as a kind of savings component or type of investment, depending on the exact policy. Examples of permanent life insurance include whole and universal life policies.
What Is Whole Life Insurance?
A whole life policy is a type of permanent life insurance that contains both a death benefit and cash value. The cash value can grow if the company you buy insurance from pays dividends into it. Mutual life insurance policies and some policies sold by stock insurers frequently contain dividend options. Dividends can be based on things like the financial performance of the company.
For more information, read our whole life insurance guide.
What Is Universal Life Insurance?
Universal life insurance is another example of permanent life insurance. One of the key differences between whole and universal life insurance is in the policy’s flexibility. With many universal policies, you can adjust your premiums and the death benefit while the policy is active. There are also several different types of universal life policies, including indexed universal life (IUL), variable universal life (VUL), and guaranteed universal life insurance.
For more information, read our universal life insurance guide.
What Is No-Exam Life Insurance?
A no-exam life insurance policy is a type of policy that doesn’t require you to take a medical exam when applying. These policies can be either term or permanent policies. The approval process for these types of policies is often brief because you don’t have to schedule and undergo a medical exam as part of the application process.
While companies may waive the medical exam for some applicants, a no-exam policy won’t require anyone to take a medical exam.
Who is the beneficiary?
The beneficiary is who or what you select to receive the money from your life insurance policy after you pass. This could be a person such as a family member or friend or it could be an organization like a charity.
Who is the policyholder?
The policyholder is the person who purchases the life insurance policy. This may be the same person who is being insured, the beneficiary, or someone else like a spouse.
What is a death benefit?
The death benefit is the money paid to the beneficiary after the person insured has passed away. The death benefit is usually paid only when the policy is paid up.
What is the cash value?
The cash value is the portion of your premium that is set aside in a separate account in your permanent life insurance policy. The cash value can do a number of different things. Depending on the type of policy you have, it can earn interest or be invested. You can also borrow money from it or in some cases use it to pay your life insurance premiums.
Do life insurance policies pay dividends?
Some whole life policies pay dividends. This will depend on your policy and you should check with your insurance company or agent to see if your current policy or the policy you are considering pays dividends.
How long do you have to claim life insurance?
Generally, life insurance companies need to adhere to state laws on how long a beneficiary has to claim insurance benefits. Talk to your agent or the company that the policy was purchased from if you have questions.
Does life insurance pay for death by suicide?
Some companies will pay the death benefit for death by suicide. There are sometimes suicide clauses or waiting periods within a life insurance policy, which generally expire two to three years after the policy was purchased.
If you or anyone you know is contemplating suicide, help is available. Call any time of day for free, confidential support from the National Suicide Prevention Lifeline at 800-273-8255. The organization also operates more than 150 crisis centers that offer encouragement and local resources. Please reach out to them if you are in crisis.
Can you get life insurance if you have cancer?
This will likely depend on both the insurance company and your particular policy. Many life insurance policies require a medical exam as part of the application process. This may preclude you from getting a life insurance policy, but not always. This will depend on the stage and type of cancer, treatment, and whether or not you’re in recovery.