What Is a Life Insurance Policy?

Life insurance is financial security for your loved ones if you pass away earlier than expected. The United States purchased around 27.8 million life insurance policies in 2018, proving the policy’s importance to any family’s financial plan.

The concept behind life insurance is similar to other types of insurance. You purchase insurance just in case the worst should happen. You need financial protection in the event of car accidents or house fires. Life insurance, although morbid as it may be, is the financial protection you grant your loved ones in case you die.

At Ipsen Insurance, we can help you find the right life insurance policy that suits your current living situation. Contact our Utah life insurance agency today to schedule an evaluation.

Life Insurance Policy Components

  • Insurance Provider: The insurer or insurance policy provider is the company that grants life insurance policies. State insurance departments regulate the companies providing life insurance.
  • Policyholder: The policyholder is the insurance policy’s owner. Policyholders can insure themselves or another person. The person benefiting from the life insurance policy is known as the insured.
  • Policy Length: The lifespan of an insurance policy.
  • Death Benefit: The amount of money an insurance provider pays in case the insured passes away. Insurers will pay the deceased’s beneficiaries, which can be people or entities like charities.
  • Premium: The payments that policyholders make on a monthly or yearly period to keep the insurance policy active.

Person Signing Life Insurance Policy

Types of Life Insurance

Term Life Insurance

Term life insurance pays surviving spouses or children if you die. This is the most affordable and least complicated type of life insurance.

You can purchase a term life insurance policy that covers between 10 and 30 years. Your beneficiaries will only get the policy’s death benefit if you die within your policy’s term.

For example, your 20-year term life insurance policy offers $500,000 coverage. The policyholder pays premiums for 20 years. If the insured dies within the policy’s 20 years, the beneficiaries get the death benefit.

Permanent Life Insurance

Permanent life insurance is a dual-type policy acting as an insurance policy and savings account. This type of life insurance has a cash value, which is an amount of money you can cash out or borrow from.

This option for life insurance is more expensive because of its dual function. Permanent life insurance policies also have no expiration date. These last as long as you pay premiums or when the insured dies.

Permanent life insurance policies have three types:

  1. Whole Life Insurance: Stays in effect for as long as the policyholder intends to pay the premiums. This permanent life insurance policy allocates part of the paid premiums to the policy’s cash value. The cash value grows as long as the policy remains active.
  2. Universal Life Insurance: Has adjustable premiums. This permanent life insurance policy gives you access to some money you deposit into your policy’s cash value. Your annual charges adjust according to the cash value you access.
  3. Variable Universal Life Insurance: This permanent life insurance policy acts as a cash value account and a mutual fund on top of being an insurance policy. You get control over how you allocate your policy’s cash value.

Father reading to his children

Miscellaneous Policies

Insurers may offer other types of life insurance policies to supplement a standard life insurance policy. Miscellaneous policies are like customizable policies to provide death benefits in different ways. Here are some examples:

  • Joint Life Insurance: Also known as a first-to-die insurance policy. This policy pays death benefits for two people under one fee.
  • Survivorship Life Insurance: Also known as a second-to-die insurance policy. This policy pays a couple’s beneficiaries when they both die.
  • Final Expense Insurance: Also known as burial insurance, this policy covers funeral expenses, which range between $7,000 and $10,000 on average.
  • No Medical Exam Insurance: A popular policy because of the global coronavirus pandemic. This policy does not require a complete medical assessment to apply. Most life insurance policies require a medical examination and will assess whether an individual is eligible.
  • Accidental Death and Dismemberment Insurance: AD&D insurance policies are cheap policies. These policies pay full death benefits if you die but only a portion if the cause of death is due to a medical procedure or drug-related accident.
  • Decreasing Term Life: This policy allocates death benefits to cover debts before going to family beneficiaries. Policyholders may purchase this type of life insurance to protect survivors from inheriting debt.

Happy Family on the Beach

How To Get the Right Life Insurance

When buying life insurance, there are a handful of factors you need to consider to get the perfect policy that suits your current living conditions. Here are some essential reminders:

  • Income Replacement: Be sure to buy a policy that offers enough coverage to replace your income. Ideally, you would purchase a life insurance policy between 10 and 12 times your annual income. Consider this if you are your family’s main source of income.
  • As Soon as Possible: Be sure to get coverage as soon as you are able to. Life insurance policy premiums tend to increase as time passes. You can save more money if you purchase a life policy sooner than later.
  • Policy Length: Consider buying a life insurance policy with a long enough term policy. Seasoned life insurance agents may recommend getting a term life insurance policy instead of a permanent life insurance policy because term policies are much less complicated.
  • Limit Riders: Riders are added benefits to existing life insurance policies. See our section on miscellaneous policies for more examples. Be sure to only purchase the miscellaneous policies you need and that are the most essential.
  • Review Carefully: Be sure to go through your entire life insurance policy to understand its terms and conditions. Read everything the policy states and make sure it covers all potential situations you see yourself or the insured getting into.

Although remembering all these tips when shopping for a life insurance policy is essential, they can be overwhelming. Consider getting help from a life insurance agent, especially if you are getting a life insurance policy for the first time.

A life insurance agent is a professional who is trained to help you find the best life insurance policy for you with the coverage you need. Our life insurance agents at Ipsen Insurance can help you get the perfect deal for your current situation. We consider all factors from your financial situation to medical history so we can craft the perfect life insurance policy that works for you.