The ultimate life insurance guide: Life insurance companies, coverage and cost

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Are you ready to start shopping for life insurance? As you get older and have children that rely on you, it becomes an even more important insurance coverage to have. Use this comprehensive guide to help you navigate life insurance and help you decide what type you need and which company to buy a policy from.

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What is life insurance?

Life insurance is a coverage you can purchase that would give your family money if you die. People purchase life insurance to protect their family. It gives you peace of mind that your family will receive financial support if you pass away. Families can use life insurance payouts to settle any debt, healthcare costs, funeral costs and more.

Life insurance isn’t necessarily for everyone, though. It’s most important for those who have dependents or not enough money to cover your debts and expenses related to your death if you die.

How does life insurance work?

Like all other insurance policies, with life insurance, you pay your policy premium and your life insurance company agrees to pay a lump sum of money to your beneficiary if you die. The money paid out is called a death benefit. The death benefit is tax exempt.

Your life insurance coverage becomes active as soon as you make the first policy payment. The death benefit can be paid out as soon as you start making payments and for as long as you make your payments, depending on the type of life insurance policy you have. You must pay your premium on time and not violate any other parts of your policy.

As the life insurance policyholder, you choose the beneficiary or beneficiaries of your policy. The beneficiary is the person or people who will receive the death benefit if you die.

Policyholders can also choose how the life insurance company pays the death benefit to the beneficiary or beneficiaries. This means the policyholder can choose how much of the death benefit money is paid and at what time. For example, a policyholder could choose for half the death benefit be paid to the beneficiary right after they die and then the other half be paid one year later.

There are a number of different types of life insurance policies that all work in different ways, but these are the basic fundamentals of life insurance.

The different types of life insurance

The two major types of life insurance policies are term life insurance and whole life insurance. Whole life may also be called permanent life. Within whole life, there are many other categories of life insurance including traditional whole life, universal life, variable life and variable universal life.

At the basic level, term life covers the policyholder for a certain amount of time until the policyholder reaches a specified age, but whole life covers the policyholder for his or her entire life. You can see the details below.

What is term life insurance?

Term life insurance guarantees a payout if the policyholder’s death occurs in the specified policy’s term. A term usually ranges from 10 to 30 years and once the specified term is over, the policyholder can end the policy, renew it or move it to a whole life insurance policy. A term typically lasts until the policyholder reaches a certain specified age.

If the term life insurance policy expires before the policyholder dies, there would be no payout. If the policyholder dies within the policy’s term, the life insurance company pays the value of the policy to the beneficiary or beneficiaries.

Term life insurance policies typically cost less than whole life insurance policies because they only cover you for a specified term whereas whole life policies cover you for your entire life. Whole life policies may also have a few more features than term life. For example, term life policies don’t have a cash value until you pass away, unlike whole life policies.

There are two types of term life insurance policies: level term and decreasing term. With level term, the death benefit amount remains the same throughout the policy term while decreasing term means that the death benefit amount decreases throughout the policy’s term, usually in one-year segments.

What is whole life insurance?

Whole life or permanent life insurance differs from term life because it pays out a death benefit to your beneficiary whenever you die, regardless of your age. The different types of permanent life insurance include traditional whole life, universal life, variable life and variable universal life.

Traditional whole life insurance: Traditional whole life insurance is the most common type of permanent life insurance. You may also hear it called ordinary life insurance. In addition to a death benefit, whole life insurance policies also include a savings account. For traditional whole life insurance policies, the policyholder pays a set premium for the death benefit and the savings account can grow with interest earned, which is paid by the insurance company. Policyholders are able to withdraw and deposit into the savings account.

Universal life insurance: Universal life insurance policies are also called adjustable life insurance. If you’re looking for more flexibility than traditional whole life insurance, universal life can offer that. Universal life may have a lower premium than whole life. Policyholders can adjust the premium amount as well as the death benefit amount. Like a traditional whole life policy, universal life insurance policies also have a savings account component.

Variable life insurance: Variable life insurance differs from the other types of permanent life insurance options because of the investment aspect of it. A variable life insurance policy has a cash value account that can be invested in other sub-accounts in the policy. It can be invested in stocks, bonds and mutual funds. The benefit to a variable life insurance policy is that you could have faster growth in your policy’s value, but keep in mind that it’s a riskier life insurance policy. Your cash value and death benefit could decrease if your investments do not do well, though some policies put a cap on how low your death benefit can fall.

Variable life insurance: A variable universal life insurance combines the components of a variable life insurance policy with a universal life insurance policy. This means that you’ll have the investment component of a variable life policy with the ability to adjust your premium and death benefit with a universal life policy.

How much life insurance do I need?

It can be complicated to try to decide how much life insurance you need to purchase. There are some methods people tend to follow to help figure out how much life insurance they need. While these tactics aren’t entirely accurate, they are great ways to help you get a basic estimate that you can adjust based on your family’s needs.

How much life insurance you need depends on a number of factors including what your financial situation is as well as your family’s, how many children you have, what your income is and if you have any debt or a mortgage. When thinking about how much life insurance you need, consider your debt and income replacement.

Life insurance companies may recommend that a reasonable amount of life insurance to have is between six to 10 times the amount of your annual salary. However, this doesn’t incorporate your family’s financial situation into the calculation. If you have children, you may want to make sure you include the cost to send them to college.

Another common way people calculate their life insurance need is to multiply your annual salary by the number of years you have left until you retire.

A third way is by using the DIME calculation. This method of calculating how much life insurance you need is more comprehensive. DIME is an acronym for debt, income, mortgage and education.

  • Debt: How much debt do you have? If you die, all of your debt gets passed down to your family. Life insurance covers the debt that you would leave behind to release your family from this burden. This section should also include the cost for your funeral and burial. To calculate this part, add up all the debt you have as well as the estimated cost for your funeral.
  • Income: One of the purposes of your life insurance policy is to support your family so they can maintain their standard of living until your children reach adult age. For this portion of your life insurance coverage, take your annual income and multiply it by the number of years until your youngest child reaches 18 years old and graduates high school.
  • Mortgage: If you have a mortgage you’re still paying, be sure to include the remaining balance in your life insurance policy. This will allow your life insurance policy to cover the rest of your mortgage.
  • Education: The education part of the DIME calculation is for if you have children and plan on sending them to college. For this part of your life insurance budget, it’s often recommended to include a minimum of $100,000 per child to include tuition, rooming and all other college expenses.

Once you’ve calculated each section of the DIME budget, add them together and that is a number you can base the amount of life insurance you need. Life insurance is not a one-size-fits-all policy. You may need to adjust the number you calculated with DIME based on your unique needs. But this calculation is helpful to come up with a base starting number.

How much is life insurance?

Life insurance can cost anywhere from about $20 per month or less to upwards of a few hundred dollars per month, depending on your age, health factors and policy. The younger and healthier you are, the cheaper your life insurance policy will cost you.

The cost of life insurance can depend on the following factors:

  • Your age
  • Your gender
  • Your health history
  • Your life expectancy
  • Your job
  • Your hobbies (specifically if you have any dangerous hobbies like scuba diving or car racing)
  • Your family’s health history
  • The type of life insurance policy you choose

Keep in mind that if you choose a term life policy, the cost is recalculated when you renew at the end of each term. Whole life policies are typically much more expensive than term life policies. Whole life policies can cost 10 times more than term life policies.

Life insurance company options

Are you trying to find the best life insurance company? Take a look at a few life insurance company options below. All these options offer life insurance quotes online with quick and easy processes that utilize technology. Please note that this is not a comprehensive list of companies offering life insurance.

Fabric

Fabric offers life insurance designed for busy parents that you can apply for in about 10 minutes, according to the company’s website. Fabric policies are customizable to fit your needs. On top of life insurance policies, Fabric also offers wills to policyholders and their spouse.

Fabric life insurance policies are issued by Vantis Life, a Penn Mutual company.

Fabric life insurance policy options:

Fabric offers customizable term life insurance policies. You can choose from coverage ranging from $100K to $5M and term lengths of 10, 15 or 20 years.

You can get a Fabric life insurance estimate online. You can compare the prices of different coverage amounts and term lengths and then continue to the application process once you’ve chosen the coverage and term you want.

Fabric has a convenient mobile app that allows you to apply for life insurance, create your will and organize information.

Bestow

Bestow makes getting term life insurance simple and painless, literally. You can get life insurance coverage in as little as five minutes with no visit to the doctor, according to Bestow’s website. All you have to do is fill out an application. Bestow uses data and technology to replace a medical exam.

In addition to being simple and convenient, Bestow also offers plans at affordable prices. On its website, it says that plans start at $5 per month. Keep in mind, though, that the cost varies greatly from person to person based on your unique characteristics and needs.

Bestow policy options:

Bestow offers life insurance policies available for either 10 or 20 year terms. Bestow’s long term plans allow for up to $1M in coverage and start at $8 per month.

It’s very easy to get a quote from Bestow. Just answer a few questions about yourself on the website and you can view prices instantly. You can compare the cost of each policy term length and the cost of different coverage amounts. Once you choose a coverage type, you can continue to the application.

You can apply for Bestow policies at any time online. Bestow also allows you to cancel your life insurance policy at any time with no fees for canceling.

Ladder

Ladder offers immediate life insurance online. You can apply on the Ladder website by answering a questionnaire that Ladder says takes five minutes. Once you apply, you may receive an instant coverage eligibility decision. If you receive an instant decision, you can accept it right away.

A LadderLife insurance policy is flexible and often cheaper than many of the larger traditional life insurance companies. You can decrease coverage or apply for more coverage easily online as your life changes. You can also cancel your policy anytime for any reason.

Ladder policies are cheaper than traditional life insurance companies because it’s a digital company that utilizes technology rather than commissioned life insurance agents.

LadderLife insurance policy options

The life insurance option offered by Ladder is term life insurance. It offers various coverage amounts and policy term lengths. Ladder offers coverage amounts up to $8 million and term lengths of 10, 15, 20, 25 or 30 years.

Some of the other features of Ladder include no policy fees and a money back guarantee if you’re not happy within the first 30 days of having a policy. Your price is also locked in for your term and won’t change regardless of your age or health changes.

Ladder partnered with Fidelity Security Life Insurance Company to issue LadderLife insurance policies. Its policies are reinsured by Hannover Life Reinsurance Company of America.

Are you ready to buy life insurance? Let us know which company you end up choosing in the comments section below!


The content on this site is offered only as a public service to the web community and does not constitute solicitation or provision of legal advice. This site should not be used as a substitute for obtaining legal advice from an insurance company or an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter. The comments and opinions expressed on this site are of the individual author and may not reflect the opinions of the insurance company or any individual attorney.

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