Life Insurance Course: How Long Does It Take?

Life insurance is a crucial financial safety net for individuals and their families, offering protection in the event of the policyholder's death or a medical issue. To sell life insurance, agents must be licensed by their state. Each state has its own requirements, but the process typically involves completing a pre-licensing course and passing a state licensing exam. These courses vary in length, ranging from a 20-hour course in New York to flexible online programs offered by ExamFX. The cost of these courses also varies, with prices influenced by state fees and package selections. The state licensing exam is a challenging test, covering a range of insurance topics, and aspiring agents must achieve a passing score of 70% or higher.

Insurance regulation

The process of becoming a licensed life insurance producer or agent involves passing a state licensing exam and meeting other requirements. While the specifics vary by state, this generally involves completing prelicensing education, passing a background check, and applying for a license.

Prelicensing Education

The number of hours of prelicensing education required varies by state. For example, in New York, candidates must take a 20-hour pre-license course on life insurance, whereas Illinois-specific live online training is offered as part of ExamFX's prelicensing training.

Pre-license education courses are designed to equip candidates with the knowledge and tools needed to pass the licensing exam. These courses cover specific industry knowledge that will be tested during the exam, including general insurance concepts, insurance contract terminology, types of life insurance policies, policy provisions, and state-specific regulations.

State Licensing Exam

All states require candidates to pass a state licensing exam to become licensed life insurance producers or agents. The exam covers a range of topics, including insurance regulation, life insurance basics, health insurance basics (if applicable), disability insurance, group health insurance, and federal tax considerations.

The exam typically consists of around 100-150 multiple-choice questions, with a passing score of 70% in most states. The cost to take the exam ranges from $43 to $150, depending on the state.

Background Check and Fingerprinting

Most states require licensed agents to undergo a background check and, in some cases, fingerprinting. The process for completing the background check varies by state.

License Application

After passing the licensing exam, candidates can apply for their state life insurance license. The application process and requirements vary by state but typically involve submitting an application form, paying a fee, and meeting age requirements (usually 18 years or older).

Continuing Education

To maintain their license, licensed insurance agents are generally required to complete periodic continuing education (CE) to stay up-to-date with industry knowledge and new laws impacting the insurance industry. The frequency and specifics of CE requirements vary by state.

In summary, the process of becoming a licensed life insurance producer or agent involves completing prelicensing education, passing a state licensing exam, undergoing a background check, and applying for a license. The specifics of each step may vary depending on the state, and licensed individuals must also fulfil continuing education requirements to maintain their license.

Life insurance basics

Life insurance is a legally binding contract between an insurance company and a policy owner. The insurance company guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies. In exchange, the policyholder pays premiums to the insurer during their lifetime.

Who Needs Life Insurance?

Life insurance provides financial support to surviving dependents or other beneficiaries after the death of an insured policyholder. Here are some examples of people who may need life insurance:

• Parents with minor children
• Parents with special-needs adult children
• Adults who own property together
• Seniors who want to leave money to adult children who provide their care
• Young adults whose parents incurred private student loan debt or co-signed a loan for them
• Children or young adults who want to lock in low rates
• Stay-at-home spouses
• Wealthy families who expect to owe estate taxes
• Families who can't afford burial and funeral expenses
• Businesses with key employees
• Married pensioners

Types of Life Insurance

There are two major types of life insurance: term and whole life. Term life insurance is designed to last a certain number of years, then end. You choose the term when you take out the policy. Common terms are 10, 20, or 30 years. Whole life insurance, or permanent life insurance, stays in force throughout the insured’s entire life unless the policyholder stops paying the premiums or surrenders the policy.

How to Get Life Insurance

Once you determine how much coverage you need and what type of policy would best fit your needs, there are several options for purchasing life insurance. You can contact a local insurance agent or broker, look for online marketplaces that offer products from several insurers, or contact the insurance company directly to obtain coverage.

Life Insurance Licensing

To become licensed as a life insurance producer, you will need to demonstrate entry-level knowledge of the industry by passing a state licensing exam. Testable topics include general insurance concepts, insurance contract terminology, types of life insurance policies, policy provisions and applicable riders, group life insurance characteristics, the application and underwriting process, and annuities.

Types of life insurance policies

Life insurance policies can be broadly categorized into two types: term and permanent plans, or a combination of the two. Term insurance provides protection for a specified period, which could be as short as a year or for a specific number of years, such as 5, 10, or 20 years. On the other hand, permanent insurance is designed to provide coverage for an entire lifetime. Here are some of the specific types of life insurance policies:

Term Life Insurance

Term life insurance is a cost-effective option that provides coverage for a set number of years. It is ideal for those who only need coverage for a certain period. Term life insurance policies often include a provision that allows for coverage renewal at the end of the term, even if the insured's health status has changed. However, the premiums for renewal may be higher than the original policy.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for an entire lifetime. It also includes a savings component, where a portion of the premium is allocated towards building cash value over time. This cash value can be accessed by the policyholder during their lifetime. Whole life insurance policies can be further categorized into:

• Non-Participating Whole Life: Offers a level premium and face amount during the policyholder's lifetime, with fixed costs and low out-of-pocket premium payments. However, it does not pay dividends.
• Participating Whole Life: Pays dividends, which can be in the form of cash, used to reduce premiums, or left to accumulate interest.
• Indeterminate Premium Whole Life: Similar to a non-participating whole life plan but with adjustable premiums based on the insurer's current estimates of investment earnings, mortality, and expense costs.
• Limited Payment Whole Life: Requires premium payments for a limited time, offering lifetime protection with a limited number of premium payments.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that provides coverage for an entire lifetime, as long as premiums are paid. It is sometimes called adjustable life insurance due to its flexibility. Policyholders can increase or decrease the death benefit and adjust or skip monthly premiums within certain limits. Universal life policies also have a savings component that grows over time and allows for borrowing.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance. It consists of a fixed death benefit and a variable cash value that rises and falls based on the policyholder's payments and the performance of their selected investments. While it offers the potential for greater benefits, it also exposes the policyholder to higher risk, fees, and costs.

Final Expense Life Insurance

Also known as funeral or burial insurance, final expense life insurance is a type of whole life insurance with a smaller and more affordable death benefit. It is designed to cover end-of-life expenses, such as funeral costs, medical bills, or outstanding debt. This type of policy is often easier for older or less healthy individuals to qualify for.

Supplemental Life Insurance

Supplemental life insurance provides additional coverage beyond what a company's group life policy offers. It can be purchased from an employer or a private insurance company for an additional premium.

Survivorship Life Insurance

Survivorship life insurance, also known as joint life and survivor insurance, covers two people on a single policy. It pays a death benefit once both policyholders have passed away and is often used as part of an estate plan.

These are just a few examples of the types of life insurance policies available. When choosing a policy, it is important to consider your individual needs, financial situation, and the specific features offered by each type of policy.

Tax considerations for life insurance

While life insurance is not typically taxable, there are several tax considerations and implications to be aware of. Firstly, let's look at the tax implications for the beneficiaries of a life insurance policy. Generally, beneficiaries do not have to pay income or estate taxes on the proceeds of a life insurance policy. However, if the payout is made in installments, the interest accrued will be taxable. Similarly, if a beneficiary takes out a loan against the policy's cash value and the policy lapses before repayment, taxes will be owed on the outstanding loan amount.

Now, let's discuss the tax considerations for the policyholder. The cash value growth within permanent life insurance policies, such as whole life insurance, universal life insurance, and variable universal life insurance, is typically considered tax-deferred. This means that any gains, including interest and dividends, are not taxed until they are withdrawn. When withdrawing from the policy's cash value, taxes are only paid if the withdrawal exceeds the "cost basis", or the total amount paid in premiums. It's important to note that Modified Endowment Contracts (MECs) are subject to different taxation rules, and a 10% penalty may apply if the policyholder is under a certain age.

Additionally, policy loans, which allow access to the cash value without surrendering the policy, are generally tax-free. However, if the policy lapses with an outstanding loan that exceeds the cost basis, the gains inside the policy will be taxed as income.

Furthermore, life insurance can impact estate taxes. If the value of an estate exceeds a certain threshold, it will be subject to federal estate taxes. While the death benefit of a life insurance policy is tax-free, it can increase the value of the estate if the deceased owned the policy. To avoid this, an Irrevocable Life Insurance Trust (ILIT) can be set up as the owner and beneficiary of the policy.

Lastly, it's important to consider the tax implications of who pays the premiums. If a business pays for an employee's life insurance policy, this should be treated as a taxable event for the employee. If not, the death benefit will become taxable. Similarly, if a grandparent pays the premiums for a grandchild's policy, this may trigger gift tax or generation-skipping tax.

State-specific regulations

The process of obtaining a life insurance license varies from state to state. Here is a state-by-state breakdown of the regulations and requirements for obtaining a life insurance license:

California

The California Department of Insurance (CDI) requires aspiring life insurance agents to complete a five-step process. The steps include taking a pre-licensing course, undergoing a fingerprint-based background check, taking the California Life Insurance Licensing Exam, completing a license application, and waiting for the application results. The pre-licensing course takes 20 hours of life insurance pre-licensing education and 12 hours of ethics and California Insurance Code, for a total of 32 hours. The licensing exam consists of 75 scored questions, including general and state-specific sections, and costs $88, with an additional $33 convenience fee. The application fee is $188, with an extra $5.60 transaction fee if applying via the National Insurance Producer Registry (NIPR). Obtaining a life insurance license in California typically takes a few weeks.

Illinois

The Illinois Department of Insurance (IDOI) outlines a four-step process for obtaining a life insurance license. The steps include completing an Illinois Insurance Pre-license Course, taking the Illinois Life Insurance Licensing Exam, completing a license application, and waiting for the application results. The pre-licensing course requires 20 hours of education, with 7.5 hours completed in a classroom setting. The licensing exam is administered by Pearson VUE and consists of 81 scored questions, including general and state-specific sections. The exam fee is $92 for each section, for a total of $184. The application fee is $215, plus a $5.60 transaction fee. The entire process usually takes a few weeks. Illinois offers a 180-day temporary life insurance license.

North Carolina

North Carolina administers separate exams for life and health insurance licenses. Each exam costs $45. To become a fully licensed life and health insurance agent, additional fees may apply, such as an application fee, background check processing fee, or fingerprinting costs.

Texas

Texas offers the Designated Home State (DHS) Adjuster license, which allows adjusters to obtain an All-Lines Adjuster license in Texas. The online Property/Casualty Adjuster licensing course includes the Texas Adjuster state licensing exam. After completing the course and passing the exam, applicants can apply for their Texas P/C Adjuster license remotely.

Other States

While specific details may vary, most states require individuals to complete a pre-licensing course, pass a state licensing exam, and apply for a license. The duration of the pre-licensing course and the structure of the licensing exam often depend on the state. Some states, such as California and Illinois, require fingerprint-based background checks. The application process may involve submitting the necessary documentation, paying the applicable fees, and waiting for the results.

Frequently asked questions