Your Complete Guide to Understanding Traditional Life Insurance

Life insurance is a great way to help protect your family’s financial future. This guide explains life insurance in simple terms so you can understand how it works and how it can help your loved ones.

What Is Life Insurance?

Life insurance is an agreement between you and a life insurance provider — you agree to pay the company regular amounts of money, and in return, they agree to give a sum of money to people you choose after you’re gone.

This money can help them:

• Pay bills
• Maintain their current lifestyle
• Cover college costs
• Pay off debts

According to LIMRA, about 40% of families would struggle financially within six months if the main income earner passed away. Despite this, many people do not have enough life insurance coverage.

Read More: What is Life Insurance?

How Does Life Insurance Work?

Life insurance can be simple:

1. Premiums are paid to an insurance company.
2. When the insured dies, a death benefit is paid to their beneficiaries.

Important terms to know:

• Premium: The money you pay at regular intervals to the life insurance provider
• Death benefit: Funds paid after your death to the beneficiary or beneficiaries that you choose
• Beneficiary: The person (or people) you appoint to receive the money after you pass away — usually loved ones
• Policy term: The length of time your insurance policy lasts

Types of Life Insurance

The two most common types of life insurance are term life and whole life.

Term life

• Provides life insurance protection for a set period of time (for example 10, 20, or 30 years)
• You can pick your death benefit amount and how long the term lasts
• You may have the option to renew your coverage at the end of the term (which can cost more)
• Tends to be cheaper, especially when you’re young
• May be the best option for young families with tight budgets
• Can help protect you and your family during your most financially vulnerable years

Whole life

• Provides life insurance protection for your entire life, as long as you pay your premiums
• Part of your premium can build cash value, which can grow over time; you may be able to borrow or withdraw* against the cash value
• Might be the best option if you want lifelong coverage or are interested in building cash value

Read More: Term Life vs. Whole Life Insurance: Understanding Your Options

How Much Coverage Do You Need?

A general recommendation is to get life insurance coverage worth 10 times your annual income. This can give your family a financial cushion should something happen to you.

Some other things you might consider:

• Family size: More dependents can mean more money is needed to cover expenses after you’ve passed away
• Debts: Mortgage, car loans, credit cards, or student loans may need to be covered
• Future costs: College, caring for parents, or other planned expenses could be important
• Final expenses: Funeral costs and medical bills might need to be paid

For example: If you earn $50,000 a year, you might start with $500,000 in life insurance coverage. If you have a big mortgage or kids heading to college, you may need more.

Online tools such as WoodmenLife’s Life Insurance Calculator can help you estimate the appropriate coverage amount tailored to your financial circumstances and family needs.

Read More: Calculate Your Life Insurance Needs Without the Confusion

How Much Will Your Life Insurance Cost?

Your premium rates can depend on:

• Age: Generally, younger people tend to pay less. Buying life insurance early can save you money.
• Health: Healthier people often get better rates. Insurance companies can check blood pressure, cholesterol, and family health history, among other health markers.
• Lifestyle: Non-smokers typically pay less than smokers. Companies may also look at alcohol use and high-risk hobbies.
• Coverage amount: Depending on the type of insurance you choose, a higher coverage amount often means higher premium payments.

For example:

• A healthy 30-year-old might pay $20 to $30 a month for $500,000 of 20-year term coverage.
• A healthy 50-year-old might pay $75 to $100 a month for the same coverage.

Ways to potentially lower your premium costs:

• Buying at a young age
• Living a healthy lifestyle
• Comparing prices from different companies
• Choosing term insurance, if cost matters the most

Read More: 10 Factors That Can Affect the Cost of Your Life Insurance

Common Questions

Do I need life insurance if I don’t have kids?

You may still need coverage. Life insurance can help protect your partner and loved ones from your debts, loss of income, and funeral costs.

Can I get life insurance if I have health problems?

Yes, you may be able to. Many companies have different coverage options for people with health issues.

Is my work life insurance enough?

It might not be. Policies through an employer usually only cover 1-2 times your salary — not the recommended 10 times. Also, this coverage might not come with you if you change jobs.

What happens if I miss a payment?

Many policies give you 30 days to make a late payment without losing coverage. After that, your policy might end — but some companies allow you to reinstate your coverage within a certain time period.

Can I change my policy later?

Often, yes. You may be able to increase or decrease coverage, change beneficiaries, or convert a term policy to permanent coverage. Ask your insurance company about your options.

To learn more about WoodmenLife’s life insurance options, visit WoodmenLife.org/Life-Insurance.

Written by: Diana Henry, Senior Digital Copywriter

*Loans and withdrawals will reduce the policy’s cash value and death benefit, and may have tax consequences.

Read More

Calculate Your Life Insurance Needs Without the Confusion

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