{"id":8516,"date":"2024-11-25T09:38:49","date_gmt":"2024-11-25T09:38:49","guid":{"rendered":"https:\/\/finderica.com\/what-does-life-insurance-cover-a-guide-to-your-policy\/"},"modified":"2024-11-25T09:38:49","modified_gmt":"2024-11-25T09:38:49","slug":"what-does-life-insurance-cover-a-guide-to-your-policy","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8516","title":{"rendered":"What Does Life Insurance Cover? A Guide to Your Policy"},"content":{"rendered":"\n<div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"lazyload clicker_number\" style=\"position: absolute; height: 1px; width: 100%\" alt=\"ScoreCard Research\" data-count=\"216.98.0.236,216.98.0.236, 172.71.150.58\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\"><\/p>\n<p>It\u2019s fun to contemplate your life \u2014 who you will become, where it will take you, what you will do.<\/p>\n<p>The flip side of that conversation, though? Not so much.<\/p>\n<p>Still, it\u2019s important to prepare yourself and your family for the (un)expected. Part of that preparation may include working with life insurance.<\/p>\n<p>Many Americans are covered by some form of life insurance, with the proportion highest among parents of minor children (<a href=\"https:\/\/www.iii.org\/fact-statistic\/facts-statistics-life-insurance\" target=\"_blank\" rel=\"noopener\">59% of those involved in the 2023 Insurance Barometer Study<\/a>). And the payments can range anywhere from a couple hundred to a couple thousand dollars a year, depending on several factors.<\/p>\n<p>But what does life insurance cover? We\u2019re going to review the basics so you can determine if it\u2019s right for you.<\/p>\n<h2>What Is Life Insurance?<\/h2>\n<p>Life insurance is a contract between an insurer and a policyholder. In exchange for a premium,\u00a0life insurance companies provide a sum of money to the designated beneficiary after the insured person\u2019s death.<\/p>\n<div class=\"thepe-top-of-post\" id=\"thepe-1309591067\">\n<div class=\"adBorder\" id=\"thepe-1172840411\">\n<h3>5 Companies That Send People Money When They\u2019re Asked Nicely<\/h3>\n<p>When you log into your bank account, how do your savings look? Probably not as good as you\u2019d like.<\/p>\n<p>It always seems like an uphill battle to build (and keep) a decent amount in savings. But what if your car breaks down, or you have a sudden medical bill?<\/p>\n<p><a href=\"https:\/\/partners.thepennyhoarder.com\/nice-companies-prt\/?aff_id=384\" target=\"_blank\" rel=\"noopener\">Ask one of these companies to help\u2026<\/a><\/p>\n<\/div>\n<\/div>\n<p>In layman\u2019s terms? Life insurance helps support your family after you die. It\u2019s a financial cushion your family can turn to after the loss of your salary or income.<\/p>\n<p>Whether you need to buy life insurance depends on your personal situation \u2014 if you don\u2019t have dependents, the expense might not be worth it. However, if you have several dependents and are the family breadwinner, you\u2019ll want to seriously consider it.<\/p>\n<p>Before we dive into the nitty-gritty of life insurance, here are a couple of terms to familiarize yourself with:<\/p>\n<ul>\n<li><b>Death benefit.<\/b> The payout that goes to the named beneficiary after the policyholder dies. Lump-sum death benefits are not subject to income tax.<\/li>\n<li><b>Beneficiary. <\/b>The person or entity receiving the death benefit. You can name one or more people, a trustee, a charity or your estate. A policyholder can designate one or multiple beneficiaries, but if they don\u2019t name one, the death benefit goes to the deceased\u2019s estate. And keep your choices up to date \u2014 for example, if you go through a divorce, have another child, etc., you\u2019ll need to update your policy.<\/li>\n<li><b>Cash value.<\/b> A component of permanent life insurance policies that\u2019s in addition to a death benefit. An insurer puts your regular premium payment toward two parts: basic insurance policy costs and an internal investment or savings account that accumulates cash value. This account grows throughout the policy, and a policyholder can borrow against it, invest it or use it to supplement their income. If an owner cancels their policy, they\u2019ll receive the accumulated cash value, save for any incurred penalties.<\/li>\n<\/ul>\n<p>You\u2019ll see these terms pop up a lot when you discuss life insurance.<\/p>\n<h2>What Does Life Insurance Cover?<\/h2>\n<p>People often put a life insurance payout, or death benefit, toward mortgage payments, funeral costs, everyday expenses and debts.<\/p>\n<p>Here are five common ways of using life insurance payouts:<\/p>\n<ol>\n<li><b> Replace your income. <\/b>The payout can be used to help replace your lost income after death. Whether it goes to a spouse, small children or dependent adults, the money can be used to help support the named beneficiaries who rely on you financially.\u00a0The money can also help protect a surviving spouse whose government- or employer-sponsored benefits will be reduced after your death and future-proof financial needs, like providing for a child\u2019s higher education.<\/li>\n<li><b>Create an inheritance.<\/b> You can buy a life insurance policy, name your heirs as beneficiaries and effectively create an inheritance for them.<\/li>\n<li><b>Make a charitable contribution. <\/b>You can assign a charity as the beneficiary and make a larger donation instead of giving the cash equivalent of your policy premiums.<\/li>\n<li><b>Create another source of savings.<\/b> If you have a policy with cash value, you can borrow from it or withdraw against the total value. The interest in this plan is also tax-deferred. And, if the money is paid as a death claim, it\u2019s tax-exempt.<\/li>\n<li><b> Pay for final expenses. <\/b>Life insurance funds can be used to pay for funeral, burial, probate (the judicial process of settling an estate if there\u2019s no will) and administrative costs. You could also use it for debts (such as credit cards or a mortgage payment) and any medical expenses health insurance doesn\u2019t cover.<\/li>\n<\/ol>\n<p>How much life insurance you need depends on your unique situation. You\u2019ll want to shop around. You can get quotes online pretty easily, ensuring you find the best policy for you and your family.<\/p>\n<h2>Types of Life Insurance<\/h2>\n<p>The two primary types of life insurance are term and permanent.<\/p>\n<p>Whole life insurance is the most popular form of permanent insurance, and you\u2019ll often see \u201cwhole life\u201d and \u201cpermanent\u201d used interchangeably. Whole life falls under the umbrella of permanent life insurance policies, which we\u2019ll expand later in the article.<\/p>\n<p>For now, we\u2019ll look at the differences between term and whole life insurance, as well as some pros and cons of each.<\/p>\n<h3>Term Life Insurance<\/h3>\n<p>The simplest form of life insurance is term life insurance. This type of insurance <i>only<\/i> pays if your death occurs during the policy\u2019s term \u2014 typically between five and 30 years \u2014 and most term policies offer no other benefits.<\/p>\n<p>Here are some additional things to know about term life insurance:<\/p>\n<p>Pros:<\/p>\n<ul>\n<li>It\u2019s the easiest and most affordable life insurance to purchase.<\/li>\n<li>It can provide temporary additional coverage along with a permanent life insurance policy.<\/li>\n<li>It can typically be changed over to whole life insurance.<\/li>\n<\/ul>\n<p>Cons:<\/p>\n<ul>\n<li>You secure it for a specific period of time called a \u201cterm,\u201d such as five, 10, 15 or 30 years. The policy only pays out if your death happens during that period.<\/li>\n<li>It becomes pricier the older you get, specifically after age 50.<\/li>\n<li>You must renew the term if you want to extend coverage beyond the term length, and you\u2019ll lose coverage if you don\u2019t pay your premiums.<\/li>\n<\/ul>\n<p>There are two basic forms of term life insurance: level term and decreasing term. There\u2019s one major difference between them.<\/p>\n<p><b>Level term: <\/b>The death benefit remains the same throughout the policy term<\/p>\n<p><b>Decreasing term:<\/b> The death benefit drops, typically in yearly increments, throughout the policy term<\/p>\n<p>Level term is the more popular option because the premiums and death benefits don\u2019t fluctuate. It\u2019s also the most common life insurance policy offered.<\/p>\n<h3>Permanent Life Insurance<\/h3>\n<figure id=\"attachment_122364\" style=\"width: 1200px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" fetchpriority=\"high\" loading=\"lazy\" fetchpriority=\"high\" decoding=\"async\" class=\"lazyload size-full wp-image-122364\" src=\"https:\/\/www.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/lifeinsurance2-final.jpg\" alt=\"A young boy climbs on his grandfather.\" width=\"1200\" height=\"800\" srcset=\"https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final.jpg 1200w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-360x240.jpg 360w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-768x512.jpg 768w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-1024x683.jpg 1024w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-100x67.jpg 100w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-222x148.jpg 222w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-314x209.jpg 314w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-363x242.jpg 363w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-467x311.jpg 467w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-649x433.jpg 649w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-750x500.jpg 750w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-793x529.jpg 793w, https:\/\/cdn.thepennyhoarder.com\/wp-content\/uploads\/2019\/10\/04095907\/lifeinsurance2-final-300x200.jpg 300w\" sizes=\"auto, (max-width: 1200px) 100vw, 1200px\"><figcaption class=\"wp-caption-text\"> Getty Images<\/figcaption><\/figure>\n<p>Unlike term life, permanent life insurance pays a death benefit at any age.<\/p>\n<p>Pros:<\/p>\n<ul>\n<li>Provides death benefits no matter when you die.<\/li>\n<li>Accumulates cash value during the policy (though it usually takes 12 to 15 years to develop a good cash value), and a portion of it can be withdrawn or borrowed against within the lifetime of the policy.<\/li>\n<li>If your policy lapses, you might be able to reinstate it.<\/li>\n<\/ul>\n<p>Cons:<\/p>\n<ul>\n<li>Permanent life insurance premiums are typically more expensive than term life insurance premiums.<\/li>\n<li>You\u2019ll lose coverage if you don\u2019t pay your premiums, but some of the money you\u2019ve paid (the cash value) will be yours to keep. Remember, though, it will take a pretty long time to develop into a good value.<\/li>\n<li>Permanent life is more complex than term life, and cash value growth, fees and other factors can vary greatly depending on the company.<\/li>\n<\/ul>\n<p>Here are the major types of permanent life insurance policies.<\/p>\n<h4>Traditional Whole Life Insurance<\/h4>\n<p>Also known as \u201cordinary life,\u201d traditional whole life insurance is the most common form of permanent life insurance.<\/p>\n<p>It provides a death benefit and a savings account. Your premiums stay the same throughout the policy, and you receive a specified death benefit. The savings portion grows based on the company-paid dividends.<\/p>\n<h4>Universal Life Insurance<\/h4>\n<p>Also known as \u201cadjustable life,\u201d universal life insurance offers more flexibility than whole life. If you pass a medical exam, you may be able to increase the death benefit.<\/p>\n<p>Once you\u2019ve accumulated funds in that account, you\u2019ll have the option to change your premium payments if needed. However, you\u2019ll want to coordinate with an agent to make sure you don\u2019t use up the savings and cause a lapse in your policy.<\/p>\n<p>Universal life premiums are usually less expensive than whole life premiums but more expensive than term life premiums.<\/p>\n<h4>Variable Life Insurance<\/h4>\n<p>This policy merges your death benefit with a cash value component that you can invest in stocks, bonds and money market mutual funds. However, if your investments don\u2019t do well, you could lose money. Having said that, some policies won\u2019t let the death benefit fall below a certain amount.<\/p>\n<h4>Variable-Universal Life Insurance<\/h4>\n<p>You\u2019ll get the features of both variable and universal life policies with this one. If you purchase this policy, you\u2019ll experience investment risks and wins, and you\u2019ll be able to adjust your premiums and death benefits.<\/p>\n<h3>Other Types of Life Insurance<\/h3>\n<p>Here are five other types of life insurance policies you can purchase, depending on your situation.<\/p>\n<h4>Survivorship Life Insurance<\/h4>\n<p>Married couples have the option to purchase an individual or a joint life insurance policy. The latter covers both spouses.<\/p>\n<p>Survivorship life insurance, also known as a \u201csecond-to-die life,\u201d is a joint life policy. It doesn\u2019t pay out the death benefit until after the second insured partner dies.<\/p>\n<p>This type of life insurance is usually cheaper than single-insured plans since there is no payout until both parties die. Because of this, it\u2019s sometimes easier to qualify for a policy, too.<\/p>\n<p>A survivorship life insurance policy might make sense for a couple whose heirs could owe large estate taxes or for parents with special needs children who would need financial support after they pass away.<\/p>\n<h4>Key Man Insurance<\/h4>\n<p>This insurance covers \u201ckey\u201d employees, such as a business owner.<\/p>\n<p>Key man insurance is life and disability insurance rolled into one. The business owns the policy and pays the premiums; if an insured key person dies or becomes disabled, the business receives the payout.<\/p>\n<h4>Group Life Insurance<\/h4>\n<p>Groups and employers offer group life insurance to their members and workers. You should approach it as supplemental to individual life insurance, versus a replacement, since your employer owns the policy.<\/p>\n<p>Unlike other life insurance policies, coverage is guaranteed and there are no health questions. (The premium is based on the group as a whole.) Group insurance is typically offered as part of an employee\u2019s benefits package.<\/p>\n<h4>Accidental Death and Dismemberment Insurance (AD&amp;D)<\/h4>\n<p>Accidental death and dismemberment insurance is a limited form of life insurance that covers you or your beneficiaries if you\u2019re killed or dismembered in an accident. AD&amp;D shouldn\u2019t be considered a replacement for life or disability insurance. Because of its specificity, it might not be worth purchasing for most people.<\/p>\n<p>Policies typically <em>don\u2019t<\/em> cover deaths resulting from the following:<\/p>\n<ul>\n<li>Death during surgery<\/li>\n<li>Death resulting from a mental or physical illness<\/li>\n<li>Bacterial infection<\/li>\n<li>Hernia<\/li>\n<li>Drug overdose<\/li>\n<li>Skydiving<\/li>\n<li>Car racing<\/li>\n<li>Drunk driving<\/li>\n<li>War<\/li>\n<\/ul>\n<h4>Final Expense Life Insurance<\/h4>\n<p>This type of policy is also known as burial or funeral insurance.<\/p>\n<p>Final expense life insurance is generally a lower-value policy that beneficiaries can put toward your final wishes. A reminder: You can use <i>any<\/i> life insurance policy to pay for funeral costs.<\/p>\n<h2>Frequently Asked Questions About Life Insurance<\/h2>\n<p>Life insurance is a complex topic. So, we\u2019ve rounded up some popular questions people have regarding these policies.<\/p>\n<h3>Do I Need a Medical Exam to Qualify for Life Insurance?<\/h3>\n<p>Not necessarily.<\/p>\n<p>It\u2019s possible to get a life insurance policy without undergoing a physical. However, you may have to pay a higher premium and\/or supply supplemental health reports \u2014 it will be harder for insurance companies to evaluate your health and lifestyle, after all.<\/p>\n<p>Regardless, answer survey responses honestly, or a company could void your policy.<\/p>\n<h3>What\u2019s the Qualifying Exam Like?<\/h3>\n<p>A health care professional, such as a nurse, typically does them. The exam usually consists of a verbal questionnaire and a blood and urine sample. You can do it in your home, too.<\/p>\n<h3>What Types of Death Are Covered?<\/h3>\n<p>Life insurance policies typically cover any cause of death other than suicide within the first two years of the policy. After the two-year window, the policy will usually pay out for suicide unless there\u2019s another provision in place.<\/p>\n<p>That said, each policy is different. Some may have recreational-drug or alcohol-related death clauses, for example. People in certain occupations might not be covered, either. Your best bet is to thoroughly review a potential policy and consult with a professional if needed.<\/p>\n<h3>What Happens if You Outlive Your Policy?<\/h3>\n<p>If your term life insurance policy is about to expire and your age or health might make it difficult to renew, you have options. You can purchase a new policy (though, most likely at a higher rate), convert it to permanent life insurance or drop it altogether.<\/p>\n<h3>How Does a Life Insurance Payout Work After the Policy Owner Dies?<\/h3>\n<p>When a policyholder dies, here\u2019s what you\u2019ll do to start the claims process:<\/p>\n<ul>\n<li>Get copies of the death certificate.<\/li>\n<li>Contact the insurance agent or company to fill out any necessary paperwork and navigate next steps.<\/li>\n<li>Send a certified copy of the death certificate from the funeral director to the insurer as a part of your policy claim.<\/li>\n<\/ul>\n<p>Once someone makes the claim, the company gives the money to the beneficiaries. Typically, that\u2019s within 30 days.<\/p>\n<p><i>Kathleen Garvin (@itskgarvin) is a writer and editor whose work has appeared in U.S. News, Clark.com and Well Kept Wallet.<\/i><\/p>\n<div class=\"thepe-bottom-of-post\" id=\"thepe-1744806298\">\n<div class=\"adBorder\" id=\"thepe-439404916\">\n<h3>5 Companies That Send People Money When They\u2019re Asked Nicely<\/h3>\n<p>When you log into your bank account, how do your savings look? Probably not as good as you\u2019d like. It always seems like an uphill battle to build (and keep) a decent amount in savings.<\/p>\n<p>But what if your car breaks down, or you have a sudden medical bill?<\/p>\n<p><a href=\"https:\/\/partners.thepennyhoarder.com\/nice-companies-prt\/?aff_id=384\" target=\"_blank\" rel=\"noopener\">Ask one of these companies to help\u2026<\/a><\/p>\n<\/div>\n<\/div>\n<p>        <!-- ACF Financial Disclaimer --><\/p>\n<p>        <!-- End ACF Financial Disclaimer --><\/p>\n<p>        <!-- \n\n<div class=\"single-social-share-bottom text-center\"> --><br \/>\n                    <!-- <\/div>\n\n --><\/p>\n<p>        <!-- Newsletter Signup Form --><\/p>\n<hr>\n<hr>\n<div class=\"newsletter-signup-wrapper-for-digioh\">\n<div class=\"col-xs-12 newsletter-wrap flex-row\">\n<div class=\"container flex-container\">\n<div class=\"col-xs-12 new-newsletter-form\">\n<p class=\"text-subheading\">Ready to stop worrying about money?<\/p>\n<p class=\"text-get-daily\">Get the SS Daily<\/p>\n<p class=\"email-privacy-policy-blurb-white\">\n<\/p><\/div>\n<\/div><\/div>\n<\/p><\/div>\n<p>        <!-- End Newsletter Signup Form --><\/p><\/div>\n<p><script type=\"text\/javascript\" id=\"wp-fcapi-js-before\">\n\/* <![CDATA[ *\/\n!function(f,b,e,v,n,t,s)\n{if(f.fbq)return;n=f.fbq=function(){n.callMethod?\nn.callMethod.apply(n,arguments):n.queue.push(arguments)};\nif(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version='2.0';\nn.queue=[];t=b.createElement(e);t.async=!0;\nt.src=v;s=b.getElementsByTagName(e)[0];\ns.parentNode.insertBefore(t,s)}(window, document,'script',\n'https:\/\/connect.facebook.net\/en_US\/fbevents.js');\nfbq('init', '263664193816679');\n\/* ]]> *\/\n<\/script><br \/>\n<br \/><a href=\"https:\/\/www.thepennyhoarder.com\/insurance\/what-does-life-insurance-cover\/\" target=\"_blank\" rel=\"noopener\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s fun to contemplate your life \u2014 who you will become, where it will take you, what you will do. The flip side of that conversation, though? Not so much. Still, it\u2019s important to prepare yourself and your family for the (un)expected. Part of that preparation may include working with life insurance. Many Americans are<\/p>\n","protected":false},"author":1,"featured_media":8517,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[217],"tags":[425,265,292,189,773],"class_list":{"0":"post-8516","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-insurance","8":"tag-cover","9":"tag-guide","10":"tag-insurance","11":"tag-life","12":"tag-policy"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8516","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8516"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8516\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/8517"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}