Life insurance basics: 6 tips to find the right plan for you

Understanding life insurance basics is the first step to finding a plan that fits your needs and budget.

Whether you’re starting a family, planning for retirement, or other life circumstances, a life insurance policy can help protect your financial future.

Looking for a little help to better understand life insurance basics?

These 6 tips will help you learn more about your life insurance options, why it matters, and how to choose the coverage that’s right for you.

Life insurance basics

If you’re looking for life insurance, chances are pretty good you already know a little about it. But let’s take a minute to cover the basics:¹

• Life insurance is a contract between you and an insurance company.
• In exchange for regular premium payments, the insurance company promises to pay a lump sum (called a death benefit) to the person or people you choose (your beneficiaries) after you die.

How it works:

• You pay monthly or annual premiums.
• When you pass away, your beneficiary files a claim with the insurance company.
• The insurance company pays the death benefit after reviewing the claim.
• If your beneficiary is a minor, a custodian may be required to manage the funds.

2 types of life insurance

Life insurance falls into two main categories:²

•  Term life insurance
• Permanent life insurance (also called whole life insurance or cash-value life insurance)

Let’s take a closer look at each life insurance option:

Term life insurance

Term life insurance offers coverage for a set number of years.

• Covers you for a set time (e.g. 10 to 30 years)
• Usually the most affordable option
• No payout if you outlive the term
• May be renewable or convertible to another type of life insurance

Tip: If you’re young or have children, term life insurance may give you the most coverage for your money.

Permanent life insurance

Permanent life insurance provides lifelong protection and builds cash value you can use while you’re still living.

• Covers you for life (as long as premiums are paid)
• Usually has higher premiums than term life insurance, but includes savings features
• Always pays a benefit when you pass away
• Can build cash value you can borrow or withdraw

3 main options for permanent life insurance

If you’re looking for permanent life insurance, there are three main options to consider:

• Whole life: Fixed premiums and guaranteed cash value
• Universal life: Flexible premiums and adjustable death benefit
• Final expense: Small coverage amounts for funeral costs

How life insurance policies are issued

When you apply for life insurance, there are two main ways policies are issued: simplified and fully underwritten.

Here’s what the approval process and premiums look like:³

• Simplified issue: No medical exam required. You just answer health questions. It’s a faster approval process, but premiums may be higher.
• Fully underwritten: Includes a medical exam and lab work. The approval process takes longer, but can result in lower premiums.

What factors affect life insurance rates?

Your life insurance premium can vary widely based on personal factors. Understanding these can help you get a good rate and choose a policy that fits your budget.

Key factors include:⁴

• Age: The younger you are when you buy a policy, the lower your rate is likely to be. That’s why it’s smart to lock in coverage early.
• Gender: Women typically pay less than men for the same coverage, thanks to longer life expectancy.
• Health: Pre-existing conditions like diabetes, high blood pressure, or a history of cancer can raise your premiums. Healthier individuals usually qualify for lower rates.
• Lifestyle choices: Smoking or tobacco use are the most common lifestyle factors life insurance companies look at. If you smoke or use other tobacco products, your rates may be higher.
• Family history: If someone in your immediate family has been diagnosed with a chronic condition like diabetes, heart disease, kidney disease or cancer, you may pay higher life insurance premiums.

Tip: Improving your health and quitting tobacco use before applying for life insurance may help lower your premium.

3 reasons life insurance matters

Understanding life insurance basics can help you plan for the unexpected. Most people buy a policy for one (or more) of these reasons:

1. Pay for final expenses

• The average funeral costs $7,848, not including a burial vault.⁵

2. Replace lost income

• A policy can help your loved ones cover living expenses if you’re no longer around.

3. Leave a legacy or inheritance

• Use life insurance to transfer wealth, pay off debts, or provide financial assistance to help your family after you die.

6 tips for choosing a life insurance plan

Not sure where to start? These 6 tips break down life insurance basics and walk you through how to choose the right plan based on your needs, goals, and budget.

Whether you’re new to life insurance or reevaluating your current coverage, this checklist will help you make a confident decision.⁶

1. Determine your needs

• Calculate how much debt you have, your monthly living expenses, and your final expenses. Include any future expenses, such as college tuition.
• Figure out how long you need replacement income and how much income it would take for your survivors to pay for immediate and future expenses.

2. Get a quote from different insurance companies

• Compare rates, policy features, and benefits to make sure you’re getting a good value.

3. Choose a company with a strong financial rating

• Companies with the highest ratings offer more guarantee that they will have the finances to pay your claim.

4. Make an appointment with a licensed insurance agent

• After you narrow down your search to a specific company, speak with a licensed insurance agent to go over more details about your needs.

5. Make sure you can afford the premium

• Double check how much income you have coming in and how much expenses you have going out to make sure the rate you’re getting is affordable.

6. Read your policy

• After you’ve been issued a policy, make sure you read all the fine print.
• If you don’t like your policy, state laws generally mandate that you have a certain number of days to cancel your policy and receive a refund of any premiums you paid. This is sometimes called a “free look period.”
• Depending on the state, this may be within 10 to 30 days after the policy issue date.⁷

Life insurance for every stage of life

Life insurance needs can change as you move through different stages of life.

This section helps you understand what type of coverage makes the most sense, whether you’re starting a family, parenting solo, or planning for retirement:

Young parents with kids

• A term policy offers affordable, high-coverage protection while your children are growing up.

Married with no children

• Consider modest coverage to maintain your spouse’s standard of living.

Single parents

• A budget-friendly term policy may offer the most protection if you’re the primary income source.

Empty nesters

• You may still need income protection, help with college costs, or cash value from a permanent policy for retirement.

Get help to find the right life insurance plan

Now that you’ve got a handle on life insurance basics, you’re one step closer to choosing a policy that works for you.

If you’ve got questions about the different types of life insurance policies, premiums, or what type of coverage makes the most sense based on where you’re at, we can help.

Just give us a call at (800) 827-9990 to speak with a licensed life insurance agent today, or find a licensed life insurance agent in your area.