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Life Insurance 101

What is Life Insurance?

Life insurance is a simple answer to a very difficult question: How will my family manage financially when I die? That’s why planning for the future is one of the most important things we can do – for ourselves and for our families. While we can’t always plan for the sudden change in direction our lives may take, we can plan for what happens after.

When it comes to personal financial planning, life insurance is one component that is critical to managing your finances and family affairs responsibly. A life insurance policy pays cash to your loved ones after you die, replacing your income and allowing the financial plans you put in place to continue uninterrupted.

Most Americans need life insurance, and many who have it might need to update their coverage. This guide will help you answer some common questions and provide you with important tips on finding the policy that’s right for you.

How Much Does Life Insurance Really Cost?

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Who Needs Life Insurance?

Since life insurance is meant to provide security to those you leave behind, it’s never too early to start planning for your family’s future – even if you haven’t started a family yet. No two situations are exactly alike, which is why your need for a life insurance policy is as unique as you are. Below are some scenarios to give you a starting point when searching for the right policy.

Single with no attachment, or unmarried but supporting family

Many single adults help their families financially – or have accumulated debt that they do not want their families to incur after their deaths. A life insurance policy can protect your family, or future family, from your debt or expenses related to your death, as well as provide continued assistance to those you may already be supporting.

Married with Children, or Without

Think for a moment what your spouse’s financial situation might be if they no longer had access to your income. Could your spouse survive on their income alone? Could they afford funeral expenses, a mortgage, medical bills, legal fees or other debts? Married couples must consider how the surviving spouse will manage financially – add children to the mix and it becomes an even more important consideration.

Stay-At-Home Mother or Father

A parent who does not work outside of the home contributes just as much to the household as one who does. From childcare to managing household responsibilities, most stay-at-home parents perform roles that would otherwise be done by someone hired to help.

Single Parent

Single parents know the financial strain of raising a child on a single income. From child care to health care, education and buying that first car, parents who are raising children without the support of a partner, financial or otherwise, need to have a solid life insurance policy to ensure that goals they put in place can still be met in their absence.

Empty Nester

Most older adults, especially those whose children are grown and self-sufficient, are focused on retirement. As living expenses decrease and mortgages are paid off, they become reliant upon retirement plans and social security for income. However, this might not be enough to help your dependents cover your final or other living expenses – which is why life insurance is important even at this stage in life.


Estate planning is one step in planning your retirement, but another equally important part of the process is securing a life insurance policy. This ensures that your family will have resources to cover expenses such as medical expenses, funeral costs and any other unexpected expenses that arise.

Types of Life Insurance

Term Life insurance

Covers a specified period of time – usually 10, 15, 20 or 30 years; if your death occurs within that time period, your beneficiaries receive the face value of the policy, tax free. These policies provide the most amount of protection for a specified period at a fixed cost – with premiums that are normally guaranteed to remain the same for the duration of the term and increasing when the guaranteed policy period ends.

Permanent Life Insurance

Permanent life insurance, including whole life insurance and universal life insurance, provides protection over the course of a lifetime, not just a set period. These policies also have a cash value – a return on a portion of your premiums invested by the insurance company. The cash value is tax deferred, until you make a withdrawal and is available if you surrender a policy before your death. Premiums for permanent life insurance policies are considerably higher than term life policies.

What Kind is Right For Me?

What Kind is Right for Me





A specified term, typically 10, 15, 20 or 30 years Until age 100 or later, as long as premiums are being paid


Considerably lower than permanent insurance, when initially purchased Initially higher than term premiums, but often level for life


None Accumulates over time on a tax-deferred basis


Typically offers the highest death benefit for the lowest cost Offers lifelong protection and, in some cases, tax-deferred savings


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How much coverage do I need?

Start by identifying all your expenses – including current and ongoing expenses such as the mortgage, utilities and healthcare costs, as well as any future expenses like college and retirement. This will help you estimate how much your family would need after you’re gone to meet all your current and future financial obligations.

Next you’ll want to account for all forms of income for your family. This includes your salary, your spouse’s earnings, savings accounts,investments and more. The difference between your expenses and income is your need for additional life insurance. Of course, you’ll want to account for inflation, interest and other assets, which is where the calculation can get tricky.

For help with determining your life insurance needs, call a life insurance advisor at 1-800-963-6405.

Life Insurance Basics

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