While our site doesn’t feature every company or financial product on the open market, we believe everyone should be able to make great financial decisions with the utmost confidence. The guidance we offer, the information we provide, and the tools we create are objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence what products we write about and review and where on the site we put them. In no way does this affect our recommendations or advice, which are grounded in many hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners.
Life Insurance Basics
Life insurance definition is a contract between an insurer and a policyholder. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured policyholder dies, in exchange for the premiums paid by the policyholder during their lifetime. (investopedia)
Whether you have had insurance for years or just getting started with life insurance, there is a lot of stuff to learn. Coach B. Life Insurance Agency wants to make sure you understand the life insuranace basics and make sure that you feel confident that you are making better informed decisions when buying life insurance.
Basic Life Insurance
Several financial experts consider basic life insurance the cornerstone of a rock-solid financial plan. In these situations, it can be an important tool:
1. It’s a way to replace income for your dependents
If anyone depends on an individual’s income, a basic life insurance will replace that income if the person dies. A
great example of this would be parents with young children. Also, life insurance to replace income can be very useful if the surviving spouse or domestic partner’s government- or employer-sponsored benefits will be lost after
their companion dies.
2. Pay those final expenses you might have
Health insurance does not cover estate administration costs, other debts, and medical expenses. Also as funeral, burial costs, and probate costs. The life insurance basics can cover all those expenses.
3. Create an inheritance for heirs
Even those with no other assets can buy a life insurance basics policy and create an inheritance naming their heirs as beneficiaries.
4. Pay federal and state “death” taxes
Life insurance benefits can help pay for any estate taxes due so that heirs will not have to sell off other assets or take a lesser inheritance amount. Still, some states offset those federal decreases with increases in their state-level estate taxes.
5. Make significant charitable contributions
One can name a charity as the beneficiary to all or part of their life insurance policies; individuals can contribute much more than if they only donated the cash equivalent of the policy’s monthly premiums.
6. Create a source of savings
There are several types of life insurance, like whole life or universal life, that create a cash value that can be borrowed or withdrawn at some point at the owner’s request. Since most people pay their life insurance policy premiums a high priority, buying a cash-value policy can create a “forced” savings plan. For example, a college fund or retirement income. Furthermore, the interest credited is tax-deferred (and tax-exempt if the money is paid as a death claim). Almost, leaves needing a life insurance for dummies book to understand it all.
Get a quote for basic term life insurance
Life insurance basics 101: Understanding life insurance
A part of life insurance basics 101 is knowing when to choose the right term or permanent life insurance products.
Young and married with small children: younger families might need more death benefits or face amount from a life insurance basics policy because the need for income replacement to cover the expenses of younger children is much greater at this point. Also, if a spouse that stays home to take care of the children were to die, there would be an additional expense for the surviving spouse to pay for the remaining children’s daycare services and expenses.
A term plan is typically the best option and is the least expensive option to get the most coverage. Longer-term policies like the 20-year or 30-year plan can be the most suitable for young families.
Young and married with no children: If you and your spouse work and household expenses are shared equally, you may need life insurance on both. Depending on your lifestyle, it could be very hard to maintain the same standard of living if one of you happens to die. According to a Kiplinger Magazine article, a small coverage may be enough to meet your needs. Since term policies can allow you to get the basic coverage you might need, you can pick plans with a lower death benefit to get a more affordable rate.
Single-Parent: like young couples with children, single parents who have younger kids may also need a large death benefit policy. Studies show that most single parents are women, and the average salary single mothers earned as of 2019 was $48,098.3. This income is far less than the average wage for married couples with children under 18, about $102,308 (2019).3 With less money among the majority of single parents, it’s more than likely that there wouldn’t be enough savings used for income replacement if a parent dies.
The life insurance basics 101 step in this situation is to get a low-cost term life insurance policy that can provide the most financial protection. The lower cost of term insurance makes it a practical choice for single parents.
Recent empty-nester: so now the children are gone off to college, but that doesn’t mean your life insurance basic needs end. You may need to support those children through their college years to help them pay for tuition, room and board, books, or even extra clothing.
By chance, your household runs on two incomes, and you still have major debts to pay off; like a mortgage, you may need income replacement protection. Depending on one’s age, you may also have a while to go before having enough retirement savings.
At this stage in your life, a policy that has a death benefit your spouse could use to cover expenses if one of you dies would be beneficial. At this point, the policy can also build cash value to supplement your income may be the most suitable. Depending on your needs, you could also choose to go with a term plan to convert to permanent insurance or go straight for a permanent policy immediately.
For example, if you’re 55 and looking to have cash value in a policy by the time you’re 65, then a permanent plan may be best because it takes that long to build up cash value.
If you do not need a supplemental income as fast, you could get a 10-year convertible term plan. So by the time you’re 65, you could have a whole life policy, and when you reach 75, you could have cash value in the policy. One thing to keep in mind when converting a term plan is that insurance companies usually only allow you to do this before you turn 65.
If you need a policy to help supplement your income, then the cash value from a permanent plan may meet your needs. Please keep in mind that it takes some time to build cash value. So depending on your age, you may want to weigh the odds of whether or not you will be around long enough to use this feature.
You could also choose a type of permanent insurance, final expense insurance, typically offered as a whole life policy. This type of coverage was designed to cover your burial and funeral expenses, not your long-term financial needs. Life insurance 101 basics.
How Much Life Insurance Do You Need?
Get the right coverage for you.
5 benefits of life insurance
- Life insurance proceeds are tax free
- Your dependents won’t have to worry about living expenses
- Life insurance will cover final expenses
- You can get coverage for terminal and chronic illnesses
- Life policies can supplement your retirement savings
Help getting started with basics of life insurance types
Getting help with more of the basics of life insurance types and what Coach B. Insurance can offer.
What to know about life insurance basics
Explore your benefits and understanding of life insurance basics. Get the most out of your policy.
Going from a term policy to a universal or whole life policy without taking medical exam.
UL offers flexibility in premiums, account value, and the death benefit.
A policy that will pay you back all your premiums. Find out more here.
Life insurance basics enhancement
Life insurance basics for estate planning. What does life insurance cover?
What is life insurance and how does it work?
Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death. Your beneficiaries can use the money for whatever purpose they choose.
What are 5 things to consider when buying life insurance?
- Decide how long you need coverage
- Calculate how much life insurance you need
- Think about other objectives
- Name a beneficiary. …
- Talk with a trusted advisor
What is basic life insurance?
Basic life insurance is a simple life insurance policy, often offered as part of a benefits package at a company along with group health insurance, paid time off and more. Companies often offer basic life insurance choices to their employees on a free or very inexpensive
Advertiser disclosure While our site doesn’t feature every company or financial product on the open market, we believe everyone should be able to make great
About Coach B.
After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.
In the years since then, he has worked tirelessly to improve the process of shopping for insurance. His goal is to make sure that everyone who comes to Coach B. — whether they end up buying a policy or not — has the best possible experience.