Life Insurance Basics Explained

Last Updated on September 21, 2020 by Andrew Lee

At its core, life insurance is a policy that provides a death benefit. As a policyholder, you can protect your loved ones by leaving them with something that can help them out financially, in the event that you pass away.

Who can benefit from it?

Anyone can benefit from owning a life insurance coverage. However, those who can benefit the most out of it are the other members of your household or your family, especially if your passing will result in them experiencing financial hardships.

What’s behind its price?

Insurance companies base price on your life expectancy. Anything that reduces it, such as medical conditions like heart disease or hypertension, or unhealthy habits like smoking will make premiums go up.

And like with other insurance products such as health, where you live and the overall health rating in your location also affects premiums. For instance, residents of Minnesota and Vermont, the two states that ranked first in the 2015 Commonwealth Fund Scorecard on State Health System Performance, may obtain lower-cost coverage.

What can you expect during an application?

In most cases, you would have to undertake a medical exam. Insurers will also review your medical records and family health history. They will check prescription-drug databases to verify the medicines you take and the medical procedures you’ve undergone in the past.

What’s the simplest type of life insurance?

Term life insurance, because all you need to do is to choose the policy value and term, and keep paying your premiums.

Why consider a whole life policy?

Because it provides benefits other than the payout. A whole life policy comes with a cash value component, which builds up money as you keep paying your premiums. After a set period of time, you can borrow against this tax-free, and use it for other important expenses.

Which one should you buy?

This depends on your particular insurance needs and personal preferences. If you want something really simple, consider a term life insurance policy. If you want a risk mitigation tool with an investment aspect, then a whole life insurance policy may be best suited for you.


National Association of Insurance Commissioners:

The Commonwealth Fund: