Life insurance is one way to help protect your loved ones now and in the future. A life insurance policy, can help you live life to its fullest and provide financial confidence, knowing your family will be protected when you’re no longer there to care for them yourself.

Once you’ve decided you need life insurance protection, you’ll need to:

  • Learn the basics of life insurance
  • Decide which type of life insurance you want
  • Find out how much coverage you need
  • Choose a life insurance company you trust
  • Apply for a policy
  • Go through the underwriting process
  • Find out if you are eligible and for how much
  • Name a beneficiary

What you need to know about life insurance

First, you need to know what types of life insurance are available and the key components of a life insurance policy. There are two main types of life insurance: term life insurance and permanent life insurance, like whole life insurance. Term life insurance covers you for a set period of time, usually 10, 20, or 30 years. Once the term expires, you are no longer covered. On the other hand, whole life insurance can cover you for your entire life, so no matter how long you live, your family will be protected when you’re gone.  

All life insurance policies require you to pay a premium to maintain coverage[1]. As long as you’re covered, which may be a fixed term or for life, your beneficiaries will receive a death benefit when you pass away. Whole life insurance policies also have guaranteed cash value[2] that grows over time and can be used during your lifetime[3]. And if you want additional protection, you may be able to add riders to your policy that will include more coverage in some situations.[4]

Here are the key terms you’ll need to understand before you start your analysis:

  • Premium: the payment you make to maintain your policy, which can be made monthly or less frequently
  • Term: the amount of time your policy will help protect you and your beneficiaries
  • Death benefit: the lump sum payment your beneficiaries receive when you pass away
  • Coverage: the amount of death benefit that covers the insured at any particular point in time during the term.
  • Beneficiary: the person(s) or organizations that will receive the death benefit from your policy
  • Cash value: money that grows inside a permanent policy which you can access while you are alive
  • Rider: a feature adding optional additional protections to your policy

 

Choosing from your life insurance options

If you are looking for insurance coverage for a predetermined period of time, term life insurance might meet your needs. If you’re planning for longer term coverage, whole life or universal life insurance may be a better option. Whole life, for instance, can cover you permanently and help build a valuable financial asset in the form of a cash value you can use for things like buying a house or paying for a child’s educational costs. Whole life insurance premiums are higher than those for term life insurance. That is because whole life insurance is meant to last for your entire life and provide you with additional guarantees. Universal life’s premium may be less expensive and also more flexible, but you do not have the guarantees that come with whole life.[5]

Term Life Insurance vs. Whole life insurance

Which type of life insurance is right for you? That depends on your age, your financial situation, and other factors. A term life insurance policy may be less expensive, but if you have many working years ahead of you, being able to accumulate a cash value with a whole life policy can help protect your family and your finances in more ways than one.

How much life insurance should you have?

How much coverage you need mostly depends on where you are in life and how many people depend on the income you earn. In general, the younger you are, the more coverage you’ll need to compensate for the years of potential wage-earning ahead of you. And the more people depend on you, the more coverage you’ll want to meet all their needs in the event of your untimely death. The average coverage level of a life insurance policy for a healthy 30-year-old is around $500,000, but your needs may be different.[6] You’ll pay more in premiums for a policy with higher coverage, so you’ll need to weigh the benefits you want against the premium you can afford. You can use this calculator to help calculate the cost of the protection you may need for your unique situation.

 

Choosing a life insurance company

When you’re looking for long-term financial confidence, it’s important to choose providers and financial professionals you trust. Look for a life insurance company that shares your values and has the longevity to prove they’ll be there when you need them.[7] 

 

Who’s eligible to buy life insurance?

Eligibility for a life insurance policy is based on several factors: your age, your overall health, your lifestyle habits and other factors. Most people are eligible to buy life insurance, but the type of policy, level of coverage and cost all depend on your unique situation. If you have a medical impairment, your premium may be higher, or certain benefits may not be available. If you expect to have difficulty getting approved for a life insurance policy, talk to a financial professional who can explain what options are available to you, and help you make the best choice for your circumstances.

Do you need a medical exam to buy life insurance?

Usually, you’ll need to undergo a medical exam to be approved for a life insurance policy, but there are some exceptions. Some policies don’t require an exam but do place a cap on the level of coverage you can purchase without one. Other policies may not require a medical exam if you fall within a certain age range. And sometimes you’ll be asked to answer medical questions, rather than submit to a full medical exam, to qualify for some policies.

What you should know about naming a beneficiary

Your beneficiary, or beneficiaries, receive the death benefit when you pass away, and if you name more than one, they’ll split the lump sum payment between them according to the percentage indicated by you.

Typically, the spouse or children of the policy holder are named as beneficiaries, but those aren’t your only options. You can also name a charity, a trust, your estate, or another person close to you as a beneficiary. Parents should know minor children are not eligible to receive the death benefit, so if you have young children, you’ll need to set up a trust to manage the payment for them until they’re of age[8].

Your primary beneficiary is the first in line to receive the death benefit, but you can also name a secondary beneficiary who will receive the payment if your primary beneficiary passes away before you, and a final beneficiary in case both your primary and secondary beneficiaries have passed away when your death benefit is paid out.

 

What happens after you apply for a life insurance policy?

The first thing you’ll do when you’re ready to apply for life insurance is to contact a financial professional. They’ll review your personal financial situation with you and review potential coverage options. Then you’ll submit an application that will include details about your medical history, finances, primary care physician and beneficiaries. If the policy you’re applying for requires a medical exam, you’ll undergo an exam during the application process.

After you apply, your application will be assessed to determine the risk involved, which is called underwriting. The underwriting process can take a few weeks, but your financial professional will notify you when you’ve been approved.

Mistakes to avoid when buying life insurance

There are a few common mistakes people make with life insurance that you should look out for when you’re buying a policy. One common mistake is buying the wrong kind of insurance for your circumstances. For example, someone in their 20s or 30s who purchases a term life insurance policy may find that their policy expires while they’re still alive, so their beneficiaries receive no death benefit from the policy. Another common mistake is not buying enough coverage, so the benefit paid out to your beneficiaries ends up being too small to cover all their needs. Waiting too long to buy a life insurance policy can be another costly mistake, since premiums are generally more expensive for older buyers.

Working with a knowledgeable financial professional can help you avoid the most common mistakes people make when buying life insurance. Your financial professional can help you find the right policy for your situation, calculate the amount of coverage you’ll need, and make the best use of the cash value benefit some policies offer. Find a financial representative near you to discuss the best choices for you and your family.

Want to know which life insurance is right for you?

Connect with a financial professional who can help you decide.

Disclaimer

1

Whole life insurance is intended to provide death benefit protection for an individual’s entire life. With payment of the required guaranteed fixed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2

Some whole life policies don’t have any cash values in years one or two. Whole life insurance should be considered for its long term value. Early cash value accumulation and early payment of dividends depend upon policy type and/or policy design, and cash value accumulation is offset by insurance and company expenses. Consult with your Guardian representative and refer to your whole life insurance illustration for more information about your particular life insurance policy.

3

Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

4

Riders may incur an additional cost or premium. Rider benefits may not be available in all states.

5

Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.

6

“Protecting those we love: The role of life insurance in financial wellness,” Guardian Life 2019 https://benefits.guardiananytime.com/protecting-those-we-love/p/1 2019

7

Financial information concerning Guardian as of December 31, 2018, on a statutory basis: Admitted Assets = $58.5 Billion; Liabilities = $51.3 Billion (including $44.3 Billion of Reserves); and Surplus = $7.2 Billion

8

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

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