Life Insurance Basics

Life insurance can be a safe and reliable way to help protect the ones you love. It can provide your family the means to help replace lost income, cover the mortgage or rent, pay off debts or medical bills should something should happen to you.

How it works

When you purchase life insurance, you enter into a contract with a life insurance company that agrees to pay a death benefit to your spouse, children or other beneficiary you choose. In exchange, you make payments to the insurance company. These payments are also known as your premiums — and the amount is based on a variety of factors such as your age, gender, medical history and the amount of life insurance you purchase.

Choosing the right coverage

Whether you’re looking for first-time protection, or supplementing the life insurance that you already have, you’ll want to evaluate your needs and resources before making a purchase. There are several types of life insurance, but the two most popular categories of life insurance can be defined as term life insurance and permanent life insurance (also known as whole life). It’s important to know that you aren’t limited to one type of insurance or the other. You may find that a combination of term life insurance and whole life insurance may be the best option for you.

Life Insurance Basics Takeaway Information:

  • Term Insurance
  • Permanent Insurance
  • Take action

Term Life Insurance

Term life insurance is a good option if you need coverage for a specific period of time — which can be anywhere from one to twenty years or more, with the opportunity to renew after each term. This type of life insurance features lower initial rates that increase at regular intervals until coverage ends. People usually select term insurance to help cover specific financial obligations such as lost income, mortgages, debts, or education expenses. Term life insurance typically does not build cash value; however, it’s an affordable way to get the maximum coverage to meet your changing needs. For example, you may want to consider a term policy that matches the length of your home’s mortgage or lease. With term life insurance, benefits are paid if the insured dies during the period covered by the policy.

Key Reasons to Choose Term Life:

  • Has lower initial rates that increase as you age
  • Offers a high level of financial protection at an affordable price
  • Can be used as supplemental coverage to an existing policy
  • Usually can be renewed after the term or exchanged for permanent life

Permanent Life Insurance

Permanent Life Insurance, also known as whole life insurance, is designed to meet the long term needs of you and your family. Unlike term insurance, whole life policies offer protection for your entire life. Rates for whole life insurance are based on your age at issue. So your rate won’t go up due to changes in your age or health. With whole life insurance, rates are initially higher than term insurance; however, they are typically fixed during the life of the policy. Many choose whole life insurance because they want coverage for as long as they live. Also, whole life insurance can build cash value over time that you can borrow against as needed.

Key Reasons to Choose Permanent life:

  • Provides lifelong coverage
  • Rates generally remain consistent regardless of your age or health
  • Typically builds cash value that you may borrow against as needed

Take Action

Once you decide on the type and the amount of life insurance you need, it’s important to choose a life insurance provider that you can trust. Look for a stable company with strong financial ratings from the top independent rating services, such as A.M. Best, Fitch, Standard & Poor’s, and Moody’s Investors Service. Your family depends on life insurance — so you’ll want to have the peace of mind in knowing that your life insurance provider will be around when you need it most.

There are several resources available to answer your questions and help you make the right decision.

  • A.M. Best
    908-439-2200
    www.ambest.com
  • Moody's Investors Services
    212-553-0300
    www.moodys.com
  • Standard & Poor's Insurance Ratings Service
    212-438-2000
    www.standardandpoors.com
  • Fitch
    212-908-0500
    www.fitchratings.com