When searching for life insurance online, it can be easy to become overwhelmed. You’re immediately inundated with dozens of companies offering their services, pushing a variety of products with different names and slipping right into industry-specific jargon that the average person outside the insurance world may not understand.
Even after you stop searching, it’s possible that in today’s world of targeted advertising, you’ll still see life insurance information on your social media feeds. It’s understandable that this information overload can lead you to want to put off or abandon the process.
Sometimes, it’s best to reset and start at the beginning. If you haven’t shopped for an individual insurance policy before, you’ll want to understand the basics before you start moving forward. And today, you’ve made the right choice on clicking on this guide to introduce you to the concepts you will come across once you resume your search. We’ve assembled some of the most common questions to help you on your way.
Life insurance can help you protect what matters most to you. It is a contract between you and an insurance company that pays a sum of money to your beneficiaries after your death in exchange for monthly, quarterly or yearly payments. This sum of money can be used to pay the expenses that may fall to others in your absence. It can also provide additional support for your family (or other beneficiaries) to cover future expenses that you would have otherwise paid for or contributed to.
After you find the best coverage for your lifestyle and fill out an initial application, you enter into a process called underwriting. Underwriting is the research an insurance company does to determine whether the company can insure the applicant and assigns them a risk classification based on their lifestyle factors.
Those factors can include age, sex, medical history (both personal and family), driving and criminal record, and even hobbies or your occupation. Which of the following individuals seems like less of an insurance risk?
Person A – an individual in their mid-20s with a clean bill of health who avoids tobacco and alcohol, has no history of family illness and spends their free time away from their desk job reading and taking long walks.
Person B – an individual in their early 50s with health issues caused by regular cigarette smoking and heart problems in their family history, who spends most of their free time away from their job as a stunt person swimming in shark-infested waters and skydiving.
As you can imagine, Person A would be seen as less of a risk to an insurance company. Keep in mind, it’s rare that any single factor disqualifies an individual from coverage completely, and most applicants probably fall somewhere between these two examples. These are simply the considerations to categorize the level of risk.
You might! Especially if you are a salaried, full-time employee, employer-provided life insurance is a fairly common benefit and signing up is as easy as checking a box during the open enrollment period.
But what details do you remember after you check that box? Many people only have one option to choose from at their job, may not remember how much their coverage is, or even be aware they have the option to start an additional policy.
Generally, this type of life insurance will pay one or two times your annual salary, but most people will need more than that when accounting for everything life insurance can help pay for (read onto the next section for examples). Plus, if you change jobs or your employer shuffles around its benefits, you could abruptly lose that coverage while a policy that you individually own will follow you as you advance through life.
It’s helpful to get a list together of what those around you may be responsible for financially if something were to happen to you. This commonly includes your bills, like a mortgage and any other debts such as auto or student loans, but also the general daily living expenses incurred by your family that could be a strain without your income. Your final expenses, meaning your funeral and burial costs, could also be covered.
Other expenses will depend on where you’re at in your life. If you have children you intend to send to college, life insurance can help pay for their tuition and living expenses. Many people save for four years of college, but a little extra wouldn’t hurt in case your child changes paths and needs another year or goes for an advanced degree.
If you don’t expect these common expenses to be too much of a burden, life insurance can also help you finalize your legacy. You’re also able to name a charity you’re passionate about as a beneficiary, so some of your money can go to making a difference to a worthy cause. Otherwise, the money can be used to build a savings for your children or grandchildren and give them a financial leg-up when they do need it.
Even some quick, back-of the-napkin math might paint a picture that one to two times your annual salary may not cover all this, and an additional policy could add that extra layer of peace of mind.
Each will have some variations, but coverage can usually be categorized as “term” or “perm” – also known as permanent or whole life policies.
Term refers to the length of the policy, which can usually range between 10 and 30 years. This is typically for a young family to take care of temporary expenses, like a mortgage. A permanent policy is designed to last a lifetime, as long as premiums are paid on time, and is usually for those thinking about their end-of-life expenses, estate planning and retirement income. Because it only lasts for a specific period, term policies are generally less expensive, but they don’t build cash value like permanent coverage.
Many policies offer the option to convert term coverage into a permanent policy and even eliminate the need for a medical exam as long as the coverage amount remains the same, which can be a significant savings as policies are generally more expensive if you are older or have developed health issues. You have options if budget is a concern now and you’re looking at a term policy, but expect that you will be able to afford a permanent policy later in life.
This varies from person-to-person. Those lifestyle factors (age, health, family history, job, hobbies, etc.) will determine your monthly rate.
For the average young, healthy individual looking at a term policy, the monthly cost would be comparable the total you spend on grabbing a coffee on your way to work every morning1. For a permanent policy, it’s generally less than what the average American spends on TV streaming services2. If your risk level is low enough, you could even be less than these items3.
If you don’t consider your circumstances to be “average,” there are still types of coverage you may qualify for, which is why it’s always best to discuss your options with an agent.
As the famous proverb says, “the best time to plant a tree was 20 years ago. The second-best time is today.”
The same could be said for life insurance. The best time to sign up, and lock-in the lowest rate possible for yourself, is when you’re young and healthy. However, whether you’re just starting a family, have grown children, or don’t have kids and are simply looking for a way to leave a financial legacy, if you’re considering a life insurance policy: today is the best day to sign up. There are affordable options in nearly every price range, and coverage may get more expensive the longer you wait.
A critical component of the life insurance process is having a discussion with those you are designating as a beneficiary – meaning the person, people or entities that will receive the money from your policy should you pass away – to let them know about the policy and how to file a claim.
You will want to store the policy in a secure place, we recommend with other important financial documents others may need in your absence. If your beneficiaries can’t find your documentation but know the insurer you had the policy with, they can call the company to inquire.
In general, the insurer will need a copy of the death certificate and a claim form in order to pay out the policy. This can take a few weeks depending on the complexity of the policy and to prevent fraud and verify the validity of the claim. Beneficiaries will choose how to receive the payment, whether to take it as one lump sum or in regular installments (held in an account that earns interest).
AAA Life is dedicated to you from your first interaction with us, and our goal is to be there for you and your family when you need us most. Helping to protect financial futures is our business, and we’re dedicated to making life insurance easier.
We have been helping people like you for over 50 years, and today we have more than 1.6 million satisfied customers who have experienced the AAA Life difference.
Now that you’ve got the basics down, you may want to visit our Life Resources page to find more articles on topics you’re likely to come across in your research or explore our coverage options in more detail on our product pages. If you already feel comfortable and are ready to take the next step, our agents can help guide you through the process and answer additional questions as you get the process started at (888) 422-7020.
1 Gibson, Kate and Picchi, Aimee. Starbucks to raise prices, blaming inflation. It’s the third price hike since October. CBS News. Feb. 3, 2022
2 Greenblatt, Ian. Despite Return to ‘Normal,’ People are Spending More Time and Money on Streaming Services Now than During Height of Pandemic. J.D. Power. Aug. 5, 2021.
3 Monthly rates based on industry averages according to NerdWallet’s Average Life Insurance Rates for September 2022.
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