Life Insurance Coverage: What Us Life Insurance Offers

Life insurance is a financial safety net that allows you to protect your family and provide financial support to your loved ones in the event of your death. It is a contract between you and an insurance provider, who will pay a death benefit upon your death, funded through premium payments. This payout can be used to cover funeral costs, large medical bills, or expenses like housing, food, and education. There are two main types of life insurance: term life insurance, which is more affordable and covers temporary needs, and universal life insurance, which provides lifetime coverage and may include a cash value savings component. Life insurance covers most cases of death, including natural causes, accidents, and, after a certain period, self-inflicted injury. However, it's important to note that life insurance will not pay out if the insured lied on their application or engaged in certain risky activities.

Term vs permanent life insurance

Term life insurance and permanent life insurance are the two types of life insurance policies available. Both types of policies will pay a death benefit to the beneficiaries chosen by the insured person if they die while the policy is in effect. However, there are important differences between the two.

Term Life Insurance

Term life insurance covers the insured person only for a specified time period, such as 10, 20, or 30 years. It is a simple and relatively inexpensive way to get life insurance coverage. If the insured person dies while the policy is in force, the beneficiaries receive a payout. Term life insurance does not offer any cash value accumulation, and there is no option to cash out the policy. It is suitable for specific short-term needs, such as paying off debts, leaving money to a spouse, or covering funeral costs.

Permanent Life Insurance

Permanent life insurance, on the other hand, provides lifelong coverage and does not expire. In addition to the death benefit, permanent life insurance can also help build wealth and accumulate cash value that can be used during the lifetime of the insured person. This cash value can be withdrawn, borrowed against, or listed as an asset. Permanent life insurance is generally more expensive than term life insurance, but it offers more flexibility and can be used as a financial tool. It is often used for long-term financial goals.

The choice between term and permanent life insurance depends on your individual needs and financial goals. Term life insurance is usually best for those who need a large death benefit for a specific situation that will end someday and have budget constraints. Permanent life insurance is suitable for those who need long-term financial protection, want to create an inheritance for their heirs, or prefer stable premiums. Consulting with a financial advisor can help determine which type of life insurance is most appropriate for your circumstances.

What is covered by life insurance policies

Life insurance policies are designed to pay out money to "named beneficiaries" when the policyholder dies. The beneficiaries can be one or more individuals or an organisation. The policyholder must pay a single premium upfront or regular premiums over their lifetime for the policy to remain in force. The money paid out can be used for many financial needs, including funeral costs, federal or state estate taxes, education costs, credit card bills, loans, and other personal debt, and daily living expenses.

There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance is purchased for a specific period and is generally more affordable. Permanent life insurance, on the other hand, remains in force throughout the policyholder's entire life unless they stop paying premiums or surrender the policy. It is more expensive than term life insurance but includes a cash value component, which functions like a savings account. This cash value can be used to take out loans or pay policy premiums.

There are several types of term and permanent life insurance policies, each with unique features and benefits. Term life insurance policies include level term, decreasing term, convertible term, and renewable term. Level term life insurance pays the same amount of death benefit throughout the policy's term, while decreasing term life insurance coverage decreases over the life of the policy at a predetermined rate. Convertible term life insurance allows policyholders to convert a term policy to permanent insurance, and renewable term life insurance provides a quote for the year the policy is purchased, with premiums increasing annually upon renewal.

Permanent life insurance policies include whole life insurance, universal life insurance, and variable universal life insurance. Whole life insurance generally maintains the same premium and death benefit each year and includes a cash value component. Universal life insurance has a cash value component that earns interest, and premiums can be adjusted over time. Variable universal life insurance allows the policyholder to invest the policy's cash value in a separate account and also offers flexible premiums.

Who needs life insurance

Life insurance is a valuable tool to protect what's important to you, now and in the future. While not everyone needs life insurance, there are several groups of people who should strongly consider it. Here are some scenarios where having life insurance coverage is a good idea:

Couples and Spouses

Even if both partners are employed and could survive on one paycheck, life insurance can provide financial protection and peace of mind. In the event of a spouse's death, the surviving partner may want or need to take an extended break from work to grieve and adjust to new life circumstances. Life insurance can afford them that chance.

Parents of Young Children

People with young children are strongly recommended to have life insurance to protect their family. A life insurance payout can help cover the costs of daily living, such as food, clothing, transportation, and childcare, as well as fund their children's future educational pursuits.

Homeowners and Mortgage Holders

A home mortgage is one of the largest assets and liabilities on a personal balance sheet. If a homeowner dies before the mortgage is paid off, the proceeds of a life insurance policy can protect the beneficiaries and the lender. The payout can help beneficiaries keep the house and prevent the second tragedy of being forced out of their home while grieving.

Business Owners and Partners

Life insurance is essential for business owners and partners to protect their personal and business interests in the event of an untimely death. Insurance on the owner could also help the surviving spouse weather the transition until the business can be taken over or sold. Additionally, a life insurance payout can help business partners buy out the deceased owner's share of the business and cover expenses like office rent and additional staff costs.

Those Wanting to Leave a Financial Legacy

Life insurance can be a tool for those who want to pass on money for legacy purposes, such as grandparents wanting to pay for their grandchildren's education or individuals wanting to make a sizable donation to a charity. The payout from a life insurance policy is usually tax-free, making it an attractive option for leaving a financial legacy.

Final Expenses

The median cost of a funeral in the United States is surprisingly high, and many families may struggle to pay these expenses out of pocket. A life insurance policy can help cover these final expenses, including medical bills and burial costs, so that loved ones can focus on grieving rather than finances.

Co-signers or Co-owners of Debt

If you have co-signed or co-owned debt, such as a mortgage or personal loan, your debts could pass to the co-signer or co-owner if you die. Life insurance can be used to cover these debts and protect your loved ones from financial burden and responsibility.

In summary, life insurance is a valuable tool for financial planning and protection. It is important to consider your unique circumstances, goals, and the people who depend on you financially when deciding whether to purchase life insurance and what type of policy is most suitable.

How much life insurance is needed

When it comes to life insurance, there is no one-size-fits-all answer to how much coverage you need. It depends on your financial goals, family situation, and income. Here are some factors to consider when determining how much USAA life insurance you may need:

• Financial obligations: Calculate your long-term financial obligations, such as mortgage payments, college fees, and funeral costs.
• Income replacement: If you are the sole provider for your family, you may want enough coverage to replace your income for a certain number of years.
• Debt coverage: Ensure your policy includes enough coverage to pay off any outstanding debts, such as credit card debt or student loans.
• Future needs: Consider any future expenses, such as your children's education or medical expenses.
• Final expenses: Account for end-of-life expenses, such as funeral and burial costs, so that your loved ones aren't burdened financially.
• Number of dependents: If you have multiple dependents, you may need a higher coverage amount.
• Spouse's income: Even if your spouse is not the primary breadwinner, their contribution to the household income should be considered.
• Existing assets: Subtract any existing assets, such as savings, investments, or other life insurance policies, from your total financial obligations to determine the coverage gap.
• Inflation: Add a buffer to your coverage amount to account for inflation and unexpected costs.

There are several methods to calculate your life insurance needs, such as the 10 times income rule, the years-until-retirement method, the standard-of-living method, or the DIME (debt, income, mortgage, education) method. You can also use an online life insurance calculator to get a more accurate estimate.

Remember, the right amount of coverage depends on your unique circumstances, and it's important to review your policy periodically to ensure it still meets your needs.

How to buy life insurance

Life insurance is an important part of long-term financial planning for you and your family. It can be a valuable tool to help protect what's important to you, now and in the future.

• Determine if you need life insurance: Ask yourself if you have dependents, such as children or elderly parents, who rely on your financial support. Also, consider if you want to ease the financial burden on your family in the event of your death.
• Decide how you want to buy life insurance: You can shop for life insurance with an independent local insurance agent, through an independent online broker, or by going directly to an insurance company. You can even try all three methods to compare quotes and find the best fit for you.
• Know what to look for: Research the life insurance companies behind the offers you're presented with. Look for knowledgeable customer service, trustworthy agents, great consumer reviews, and financial stability.
• Figure out which type of life insurance you need: The two main types are term life and permanent life insurance. Term life insurance covers you for a set period, usually between 10 and 30 years, while permanent life insurance covers you for life as long as the premiums are paid. Term life insurance is generally more affordable.
• Determine the death benefit: Consider the amount you want to provide your beneficiaries. Plan for your funeral and estate costs, and think about other factors such as your income, debts, and dependents' needs.
• Fill out and submit your application: Provide the insurer with your health information, including any medical conditions, family medical history, and details about your lifestyle. You will also name your beneficiary as part of the application process.
• Prepare for a medical exam (if needed): Most traditional life insurance policies require a medical exam. Your insurer will let you know during the application process if this is necessary.
• Review and buy your policy: Once your application and medical exam are complete, the insurer will review all your information. If approved, they will send you a breakdown of your policy details, including the rate. If you are happy with the offer, you can then sign and complete the purchase.

Remember, it is important to feel confident in the insurance agent and company, and to understand the terms of the policy before committing.

Frequently asked questions