Understanding Adult Life Insurance Eligibility Criteria

Life insurance is a financial product that provides peace of mind and financial security for individuals and their loved ones. It offers a payout, known as a death benefit, to beneficiaries upon the policyholder's death. While it is not an investment product, life insurance can be a strategic part of financial planning, especially for young adults who want to ensure their family's financial stability in the event of their untimely death. An eligible adult life insurance plan is one that suits the needs of the individual, taking into account factors such as age, health, lifestyle, and financial obligations. The two main types of life insurance policies are term life insurance and permanent life insurance, each with its own advantages and considerations.

Permanent vs. term life insurance

Life insurance is a complex topic, but the basics are simple: its primary purpose is to provide a benefit to people you choose (called "beneficiaries") upon your death. These are typically people who depend on your income to meet their daily needs. There are two types of life insurance: term and permanent.

Term Life Insurance

Term life insurance covers you for a specified time period, e.g. 10, 20, or 30 years. It is a simple, relatively inexpensive way to get life insurance coverage. If you die while your coverage is in force, your beneficiaries get the payout. If you don't, the policy stays in force until the end of the term. Term life insurance is often a more affordable, low-cost option, allowing for a larger death benefit (or coverage) with the lowest premiums. However, there is little flexibility and the policy will expire, meaning it's likely you may not have coverage down the road if you need it. There's also a possibility that your policy will never pay a death benefit because the policy might expire before you die.

Permanent Life Insurance

Permanent life insurance, on the other hand, offers lifelong coverage and does not expire. It is generally more expensive than term insurance but can be used as a financial tool during your lifetime. It holds a cash value that you can withdraw, borrow against, or list as an asset when applying for credit. Many people use the cash value at crucial times, such as to help pay for college or as supplemental income during retirement. Permanent life insurance is a more robust and flexible asset in a long-term financial plan.

Consider permanent life insurance if you need long-term financial protection, would like to create an inheritance for your heirs, could use a tax-advantaged way to save for future expenses, or prefer stable premiums.

Conversely, consider term life insurance if you need short-term coverage or additional protection during specific times, are just starting out or are on a budget, or want some flexibility in case your needs or circumstances change.

Because of the different features of each type of policy, many people own a combination of both—term policies covering short-term needs and permanent policies that provide an ongoing benefit and flexibility in a financial plan.

Whole life insurance cash value

Whole life insurance is a type of permanent insurance that lasts the entire life of the policyholder, with premiums being paid regularly. It is believed that whole life is one of the most popular choices in the life insurance market. The cash value of whole life insurance can still grow with potential tax savings, and the death benefit is guaranteed, so long as the premiums are paid (subject to limitation and exclusions). The premiums in this type of plan are usually fixed.

The two main components that make up a life insurance policy are the death benefit and the cash value. The death benefit is the part of the plan that the beneficiaries receive later on. You can predetermine what you would like this face value to be upfront. At some companies, the cash value of the life insurance policy grows separately in a tax-deferred account. At other companies, a portion of the premiums are put into a cash savings account, earning interest with potential tax savings.

Whole life insurance with cash value can be a versatile tool to help meet several needs, like assuring (via the death benefit) that your family will be provided for should something happen to you or helping you (via cash value accumulation) achieve your retirement goals. When you keep the policy in force by paying premiums, whole life can contribute to your overall financial security, and it can supplement your retirement income.

The cash value portion of this life insurance plan can be particularly appealing because you may be able to access the money early. One can do this by taking out a loan against the policy, surrendering the policy, or making a withdrawal.

The cash value of whole life insurance grows at a fixed interest rate. This is in contrast to universal life insurance, which grows at a rate more dependent on the market, and variable life insurance, which is based on a selection of investment options, offering the potential for greater returns but also greater risk.

Eligibility criteria for dependents

Dependent life insurance is a type of life insurance that pays a death benefit to the policyholder if a covered dependent, such as a spouse, domestic partner, or child, passes away during the policy term. This type of insurance is typically offered through workplace group plans, with policies offered in $2,000 increments.

Spouse or Domestic Partner

The definition of a spouse can vary but includes anyone the state recognizes as such. For example, if your state recognizes common-law marriage and your relationship meets your state's definition, your spouse may qualify as a dependent. A domestic partner may or may not be recognized as a qualifying spouse, depending on the specific group plan.

Children

Children for whom you are a legal guardian can qualify as dependents. This includes biological children, adopted children, and stepchildren. Typically, children can only be insured up to a certain age, often 26, similar to the eligibility specifications for medical insurance. In some cases, a full-time student or a child with disabilities may be covered for longer.

Parents

Older parents may qualify as dependents if you provide care and financial assistance for them. Generally, if your parents depend on you financially and live with you, they may qualify as dependents.

Dependents of Military Members

The Servicemembers Group Life Insurance (SGLI) program offers dependent life insurance to cover spouses and children of military members through Family Servicemembers' Group Life Insurance (FSGLI). FSGLI provides a budget-friendly alternative to traditional group policies, helping military members choose cost-effective coverage for their dependents. To qualify, the military member must have a full-time SGLI policy. The maximum coverage limit per child is $10,000, while the maximum coverage for a spouse is $100,000.

Coverage amounts

The coverage amount for eligible adult life insurance depends on the type of insurance, the age of the applicant, their gender, and their health.

Term Life Insurance

Term life insurance offers coverage for a fixed period, typically ranging from 10 to 30 years. The average cost of a 20-year, $500,000 term life policy for a 40-year-old is $26 a month. The cost varies depending on the applicant's age, gender, and health. For example, a 25-year-old man can expect to pay $26.98 per month for the same policy, while a 25-year-old woman would pay $20.92. The cost increases with age, with a 35-year-old man paying $30.52 and a 35-year-old woman paying $25.56.

Whole Life Insurance

Whole life insurance provides coverage for the policyholder's entire life and typically has a guaranteed death benefit. The cost of whole life insurance depends on various factors, including the amount of coverage, age, gender, and health. For applicants aged 56 or older, the maximum coverage amount is $500,000, while those under 56 can get coverage of up to $1,000,000. The monthly premium remains the same throughout the life of the policy and is lower if the policy is taken out at a younger age. For example, an 18-year-old would pay $10.90 per month for $10,000 of coverage, while a 30-year-old would pay $15.40 for the same coverage.

Veterans Affairs Life Insurance (VALife)

VALife provides low-cost coverage to veterans with service-connected disabilities. It offers up to $40,000 in whole life insurance coverage, with the option to increase in $10,000 increments. The monthly premium depends on the age of the veteran and the amount of coverage desired. For example, an 18-year-old veteran would pay $10.90 per month for $10,000 of coverage, while a 30-year-old veteran would pay $15.40. The premium rate remains the same as long as the policy is kept, and there is no time limit to apply after receiving a disability rating.

Premiums

When it comes to life insurance, there are two main types: permanent life insurance and term life insurance. Permanent life insurance, such as whole life insurance, never expires as long as premium payments are maintained. Term life insurance, on the other hand, is financial coverage that lasts for a specific period, typically ranging up to 30 years. While term life insurance is initially more affordable, it does not offer the same long-term benefits as permanent life insurance. Permanent life insurance policies, like whole life insurance, tend to have higher premiums but can be more beneficial in the long run as they accumulate cash value over time.

• Permanent life insurance policies, such as whole life insurance, typically have higher premiums than term life insurance. These premiums remain consistent throughout the policy unless the policyholder chooses to increase the cash value of their plan.
• The premium amount is determined by factors such as the policyholder's age, medical history, and coverage goals. For example, a younger person will usually pay lower premiums than an older individual for the same level of coverage.
• In the case of employer-provided life insurance, premiums may be automatically deducted from the employee's paycheck. This ensures that the coverage remains active and provides convenience for both the employer and the employee.
• For whole life insurance, premiums are fixed for the duration of the policy. This means that the premium payments remain the same, regardless of the policyholder's age or changing health conditions.
• Some insurance companies offer flexible payment options, allowing policyholders to make payments monthly, quarterly, or biannually. This flexibility can help individuals manage their finances effectively.
• In certain situations, such as with the University of Michigan's life insurance plans, the university covers the premiums for a basic level of life insurance for its faculty and staff. This provides a valuable benefit to the employees at no additional cost to them.
• When it comes to term life insurance, the premiums are typically lower, allowing individuals to save money upfront. However, if the policyholder outlives the term, they will not receive the death benefit, and renewing the policy at an older age can be significantly more expensive.
• It is important to note that premiums for term life insurance may not always remain fixed. As the policyholder ages or their health condition changes, the premiums may increase, especially if the term is renewed or extended.
• In some cases, premiums may be waived under certain circumstances. For example, a totally disabled individual may be offered a waiver of premium, allowing them to continue their life insurance coverage without paying any additional costs.

Frequently asked questions