Life Insurance FAQs

It’s a contract between a policyholder and an insurance company that provides for a financial benefit to be paid out upon the death of the policyholder or during a certain time frame. Life insurance is available as whole (or permanent) life (payable upon the death of the policyholder) or term life (payable if the policyholder dies during a defined period).

Life insurance is a contract between an insurer and the policyholder. In return for paying premiums, the insurance company guarantees a financial payout to designated beneficiaries upon the death of the policyholder. In some cases, a policyholder may stipulate the money should go to a charity or a trust.

According to the IRS, life insurance proceeds are not taxable. Any interest received must be reported.

Supplemental life insurance is insurance typically received through your employer. This type of life insurance is usually less expensive than purchasing it privately. It is only in effect as long as your company offers it and you remain employed by that company. If you leave your job, you may lose your coverage.

Life insurance helps you leave a legacy for those who survive you. It’s also critical if you have people, such as a spouse and children, who are dependent on your income for expenses, such as a mortgage or rent, car payments, education and any other bills, even your funeral expenses.

If your insurance policy is designed to help your survivors cope with ongoing bills and expenses and maintain their standard of living, experts suggest multiplying your annual salary by 10 times. If you want to help your children with education expenses, such as college, it’s recommended to add $100,000 to your policy for each child.
If you are purchasing life insurance to leave an inheritance to your survivors or a charity, you can discuss with your agent how much you desire to bequeath. There are many options to consider, including how to establish a trust, as well as deciding if you want whole life (payable upon your death whenever that is) or term (payable during a certain time period, such as 10 years, to help survivors maintain their standard of living and children to become adults).

Term life is a policy in force for a set “term”, such as 10 or 20 years. The policyholder pays premiums during this time and if they should pass away, their beneficiaries receive a financial settlement. Term life is often used to help a spouse and any children maintain their standard of living and pay expenses if the main wage earner dies. Once the term ends, the contract ends and there is no money paid out. Term life is often cheaper for this reason.
Whole life (or permanent) lasts for as long as the premiums are paid, until the death of the policyholder. At that point, beneficiaries receive a financial settlement. Some whole life policies may be used during their term as a method for borrowing money (cash value). The policyholder then pays the money back or the amount is deducted from the final payout.

It depends on the insurance company, your age and any triggering factors. If you are older or you have been – or still are – a smoker you may be required to have a medical exam.

If you are caught providing false information, your policy could be cancelled without warning and the beneficiary could be denied a death benefit.

The younger you are, the less expensive your policy. For example, a 35-year-old female may pay $10 a month for a 20-year term life policy, while a 55-year-old female may pay $29 for the same length of time.