Maybe you recently bought a home, had a child, got married, or started thinking more seriously about what would happen to the people you love if you were no longer here. You know life insurance could help protect them, but you may not know how much coverage you need, which type of policy makes sense, or even where to begin. Terms such as death benefit, cash value, and underwriting can make a very personal decision feel unnecessarily complicated.
The good news is that you do not need to become an insurance expert before exploring your options. You just need a clear understanding of how life insurance works, what the different choices mean, and which questions to ask. A knowledgeable broker can then help you apply that information to your family, financial responsibilities, budget, and long-term goals.
In this guide, we will walk you through how life insurance works, the differences between term and permanent coverage, the factors that affect your premium, and how to estimate the amount of protection you may need. You will also learn how beneficiaries and claims work, what to consider when comparing policies, and how a broker can help you find coverage that fits your life.
Understanding Life Insurance
At its simplest, life insurance is a contract between you and a life insurance company. You pay a regular amount called a premium. In return, the company agrees to pay a benefit if you die while your policy is active. Think of it as a financial safety net that you put in place now for the people or organizations you care about.
The Death Benefit
The money paid after the policyholder dies is called the death benefit. It is generally paid to the beneficiary, meaning the person or organization you name to receive it. Your beneficiary can be:
- A person, such as a spouse, child, or other family member
- A business or organization
- A trust set up to receive the proceeds
Your beneficiary can use the death benefit according to the policy’s terms and applicable law—for example, to cover living expenses, funeral expenses, debts, or other financial needs.
How Do I Choose a Beneficiary?
Your beneficiary is the person or organization that receives the life insurance benefit after you die. Choose a beneficiary who reflects your financial goals, and keep your designation updated after major life events such as marriage, divorce, or the birth of a child.
Types of Life Insurance Policies You Should Know
There are two main types of life insurance: term life insurance and permanent life insurance. A simple way to understand the difference is to think about renting versus owning.
Term Life Insurance: Like Renting
Term life insurance provides coverage for a specific period, commonly 10, 15, 20, or 30 years. You choose the coverage amount and term. If you die while the policy is active, your beneficiaries receive the death benefit. If you are still living when the term ends, the coverage generally expires unless the policy allows you to renew or convert it.
Term life insurance is sometimes described as pure insurance, meaning it generally does not build cash value that you can access. Because you are paying primarily for insurance protection, it can provide a substantial death benefit at a relatively low cost.
With a level-term policy, the death benefit and, in many cases, the premium remain guaranteed for the selected term as long as you keep the policy in force. Some policies are also renewable, allowing you to continue coverage after the initial term ends. However, renewal premiums may be substantially higher because they are based on your age and the policy’s terms at that time.
Advantages of Term Life Insurance
- Affordable coverage: Term insurance can provide substantial financial protection at a lower initial cost than many permanent policies.
- Simple to understand: You pay premiums for a set period in exchange for a specified amount of coverage.
- Useful during important financial years: It can help protect your family while you are earning income, paying a mortgage, or raising children.
- Predictable premiums: With a guaranteed level-premium policy, you generally know what your premium will be throughout the guaranteed period.
Disadvantages of Term Life Insurance
- Coverage is temporary: Your policy may expire at the end of the term unless you renew, convert, or continue it under another available option.
- Renewal can be expensive: Premiums typically increase if you renew after the initial term.
- No cash value: Term insurance generally does not build a cash-value account.
- Replacement may become more difficult: Changes in your age or health can make obtaining a new policy more expensive or affect your eligibility.
Who Is Term Insurance Most Suitable For?
Term life insurance may be a good fit if you need affordable protection during a defined period—for example, while raising children, paying a mortgage, replacing income your household depends on, or covering other temporary financial obligations. It may also be appropriate if your priority is securing a larger death benefit while keeping your initial premium relatively low.
What Can Term Life Insurance Cost?
Term life insurance premiums vary based on the coverage amount, term length, insurer, and your underwriting classification. Underwriting is the process an insurance company uses to evaluate your risk, determine whether you qualify for coverage, and set your rate.
Here are a few illustrative examples:
| Applicant & Location | Coverage | Underwriting Detail | Illustrative Premium |
|---|---|---|---|
|
37-year-old woman in
New Jersey |
$1 million (20-year term) |
Preferred non-tobacco rate |
~$662/year
($55/month)* |
|
50-year-old man in
Florida |
$1 million
(20-year guaranteed level-premium term) |
Non-smoking rate |
~$1,518/year ($126.50/month)* |
*These examples are for illustration only. Actual rates depend on the insurer and your individual underwriting results.
Permanent Life Insurance: Like Owning
Permanent life coverage are designed to provide lifelong coverage as long as you meet the policy’s requirements and keep it in force. Many permanent life policies also build cash value, which is money that accumulates within the policy over time.
Because permanent insurance offers lifelong protection and may include a cash-value component, it generally costs more than term insurance. It is often considered by people with long-term financial, estate-planning, or legacy goals.
Types of Permanent Insurance
Whole Life: Provides lifetime coverage, fixed premiums, a guaranteed death benefit, and guaranteed cash-value growth. This option offers stability and predictability.
Universal Life: Provides lifetime coverage with greater flexibility in premiums and death benefits. Because the policy’s performance and funding can change over time, it requires ongoing monitoring to remain in force.
Variable Life: Allows you to allocate the policy’s cash value among investment options. This offers greater growth potential but also exposes you to investment risk. Premiums and other policy charges depend on the policy design, while the cash value can rise or fall based on the performance of the investment options you select.
The following examples illustrate how applicant characteristics and policy funding can affect permanent-life premiums:
| Policy | Applicant | Illustrative Annual Premium | Funding Period |
|---|---|---|---|
|
$250,000 Whole Life
policy in Maryland |
35-year-old non-smoking woman |
~$2,790* |
16 years |
|
$250,000 Whole Life policy in Maryland |
35-year-old male smoker |
~$4,083* |
13 years |
|
Universal Life |
35-year-old non-smoking woman |
~$1,487* |
Funded through age 65 |
|
Universal Life |
35-year-old male smoker |
~$2,834* |
Funded through age 65 |
*These examples are for illustration only. Actual rates depend on the insurer and your individual underwriting results.
Advantages of Permanent Life Insurance
- Coverage is designed to last throughout your lifetime.
- Many policies accumulate cash value that you may be able to access during your lifetime, subject to the policy’s terms.
- The death benefit can support estate-planning and legacy goals.
- Certain policies offer fixed premiums and guarantees that provide long-term predictability.
Disadvantages of Permanent Life Insurance
- Premiums are typically higher than those for term insurance.
- The policies can be more complex, and cash value may take time to build.
- Variable and universal life policies require ongoing monitoring and may carry additional risks.
- Accessing cash value through withdrawals or loans may reduce the policy’s death benefit and cash value or cause the policy to lapse.
Who Is Permanent Insurance Most Suitable For?
Permanent insurance may be a good fit if you want lifelong coverage or have long-term goals, such as leaving money to your beneficiaries, planning your estate, or covering final expenses. It may also be worth considering if you can comfortably maintain the higher premiums over time.
If your primary goal is affordable protection during a specific period—such as while raising children or paying a mortgage—term life insurance policy may be a better fit.
Other Life Insurance Policy Types
- Final Expense Insurance: This provides a smaller death benefit intended to help your family cover funeral, burial, medical, and other final expenses.
- Mortgage Life Insurance: This is designed to help pay off your mortgage if you die, helping protect the home and reduce your family’s financial burden.
- Joint Life Insurance: This covers two people under one policy, often spouses or business partners, with benefits generally paid after the first insured dies.
Group Life Insurance at Work and Your Options
Your employer may offer group life insurance as part of your employee benefits. Start by checking how much basic coverage you receive and whether it would be enough to protect your family.
You may also be able to purchase supplemental coverage through payroll deductions. While workplace coverage can be valuable, do not assume it will automatically follow you if you change jobs. Ask whether your coverage can be converted to an individual policy or continued through portability. These options allow you to keep some form of coverage after leaving your employer, but the rules, costs, and deadlines vary by plan. Review your benefits documents before you leave.
How Much Life Insurance Do You Need?
There is no single coverage amount that works for everyone. Instead, think about what your loved ones would need financially if you were no longer here. A life insurance needs calculator can give you a starting point, but you should also consider:
- Your income and the number of years your family may need to replace it
- Mortgage and other debts
- Future education expenses
- Childcare and household expenses
- Financial support for dependents or aging parents
- Funeral and final expenses
- Existing savings and life insurance
As a quick starting point, some people estimate seven to 10 times their annual income. You can then adjust that figure based on your actual debts, assets, and family’s needs. A seasoned insurance advisor can help you work through these numbers so you are not simply guessing or relying on a general rule.
How Is Life Insurance Cost Calculated?
When you request a life insurance quote, the insurer considers several factors, including your age, health, tobacco use, gender, coverage amount, policy type, and coverage period. Generally, the younger and healthier you are when you apply, the lower your premium may be. Here is how some of these factors can affect what you pay.
How Policy Type Affects Cost
The type of life insurance you choose affects both your premium and what you receive in return:
- Term life insurance is generally the least expensive because it provides coverage for a specific period and typically does not build cash value. Longer terms generally cost more than shorter terms for the same applicant and coverage amount.
- Whole life insurance generally costs more because it provides lifetime coverage, typically includes fixed premiums, and builds guaranteed cash value. Buying at a younger age may help you secure a lower premium and give the policy more time to accumulate value.
- Universal life insurance policy offers permanent coverage with greater flexibility in premiums and death benefits. Its cost depends on how the policy is designed and funded, as well as insurance charges, policy expenses, and credited interest.
- Variable life insurance combines permanent coverage with investment options. In addition to insurance and administrative costs, the policy may include investment-related fees. Its cash value can rise or fall with investment performance, so both cost and risk should be considered.
In addition to policy type, personal factors such as your age, tobacco use, and gender can substantially affect what you pay.
Why Your Health Matters
Insurers may consider your age, weight, tobacco use, blood pressure, medications, medical history, and previous hospitalizations when determining your eligibility and rate. These questions can feel personal, but they help the insurer assess the risk involved in providing coverage.
Generally, younger and healthier applicants qualify for lower premiums.
How Age Impacts Premium Pricing
Your age can have a significant effect on the cost of life insurance plan. To see the difference, consider these illustrative New York examples for a non-smoking man:
| Policy | Annual Premium at Age 40 | Annual Premium at Age 55 | Premium Period |
|---|---|---|---|
|
$1 million Term Life |
$773* |
$3,152* |
20 years |
|
$250,000 Universal Life |
$2,815* |
$4,799* |
20 years |
|
$250,000 Whole Life |
$4,080* |
$7,955* |
14 years |
*These examples are for illustration only. Actual rates depend on the insurer and your individual underwriting results.
As you can see, both your age and the type of policy you choose can significantly affect your premium.
How Tobacco Use Changes Pricing
Tobacco use can substantially increase your life insurance premium. Depending on the insurer and underwriting, smokers may pay two to four times as much—or more—than comparable non-smokers. For example, a 45-year-old woman in Florida seeking a $1 million, 20-year term policy may pay approximately $3,240 per year as a smoker versus $900 per year as a non-smoker.
Does Gender Affect Pricing?
Gender can also affect your life insurance pricing because insurers consider mortality patterns when setting rates. For example, a 50-year-old non-smoking applicant in Indiana seeking $1 million of 15-year term coverage may pay approximately $3,880 per year as a woman versus $5,880 per year as a man.
Compare Your Options
These examples are illustrative—not guaranteed quotes. Your actual premium can vary based on the insurance company, your health history, underwriting class, policy design, and other factors.
How to Buy Life Insurance
When you are ready to explore coverage, consider comparing at least three carriers. The lowest premium is not always the best value, so review differences in:
- Premiums and policy terms
- Coverage amounts
- Riders and additional benefits
- Financial strength of the insurer
- Guaranteed versus non-guaranteed features
If comparing policies feels overwhelming, an independent insurance broker can do the legwork for you. A broker can evaluate options from multiple carriers, explain the differences in plain English, and help you choose based on your priorities rather than requiring you to shop each company individually.
When Does Coverage Begin?
Your coverage typically begins once the policy has been approved and issued and you have made the required first premium payment. The exact effective date depends on the policy and insurer, so be sure to check your policy documents. Some applications may also include conditions or temporary coverage rules before the policy is formally issued.
After you purchase a policy, review it as your life changes:
- Review your beneficiaries annually and after major life events.
- Discuss riders and additional benefits with a trusted insurance professional to determine whether they fit your needs.
- Consider purchasing life insurance while you are younger and healthier, when coverage may be more affordable.
Common Exclusions, Contestability, and Denied Claims
Life insurance claims may be denied or disputed for reasons such as inaccurate information on your application, unpaid premiums, policy exclusions, or the policy no longer being in force.
Most policies include a contestability period, typically the first two years. If a claim is made during this period, the insurer may review the information provided on the application more closely. This is one reason it is important to answer every application question completely and honestly.
If a claim is disputed, ask the insurer to explain the reason in writing. Then review the policy and application and consider working with your insurance professional or an attorney if needed.
Life Insurance Q&A
What is a premium?
A premium is simply the amount you pay to keep your life insurance policy active.
What is a beneficiary?
This is the person or organization you name to receive the life insurance benefit after you die.
What is the face amount?
The face amount is the amount of coverage your policy provides, such as a $500,000 death benefit.
What is cash value?
Cash value is money that builds inside certain permanent life insurance policies and may be available to you during your lifetime, subject to the policy’s terms.
What are policy loans?
Policy loans allow you to borrow against your policy’s cash value. They can provide access to funds, but interest is charged, and an unpaid loan can reduce the death benefit.
What are riders?
Riders are optional features that can add benefits or flexibility to your policy. You might consider a rider when it addresses a specific need, such as disability, long-term care, or accelerated access to benefits. A trusted insurance professional can help you determine which riders make sense for your situation.
Download the Life Insurance Needs Decision Guide
Not sure what to discuss with a life insurance professional? Our fillable Life Insurance Needs Decision Guide can help you identify whom you want to protect, what the death benefit may need to cover, how long you may need protection, and which policy features matter most to you. Estimates are fine, and you do not need to know insurance terminology before completing it.
Download our free life insurance needs decision guide below.
Overwhelmed? We Can Help.
Choosing the right life insurance policy can feel complicated, but you do not have to figure it out alone. Visit our website to learn more about our life insurance solutions and how we can help you find coverage that fits your needs.
We take the time to understand whom you want to protect, what you can comfortably afford, and what you want your policy to accomplish. With broad carrier access and insurance expertise, we can help you compare your options and find coverage that fits your financial goals and budget.
Have questions or need help getting started? Contact Howard Simon at 201.390.2955 or at hsimon@hilbgroup.com
*COVERAGE DISCLAIMER: These statements do not amend, modify, or supplement any current or future insurance policy. They are not a guarantee of savings or services but reflect past client and broker experiences in the states where we are licensed. All clients and coverages are unique. Your results can and will vary. Your eligibility for products and services is subject to the final determination of underwriting qualifications and acceptance by the insurance underwriting company providing such products or services. If there is a discrepancy between information contained herein and your policy, your policy takes precedence. Consult the actual policy or your licensed agent for details regarding terms, conditions, coverage, exclusions, products, services, and programs which may be available to you.
GENERAL INFORMATION DISCLAIMER: Statements on this website regarding insurance policies and coverages and other content provide general information only. There is no intentionally misleading information contained in this website, however, Hilb Group, provides no warranty as to their accuracy. We will endeavor to correct or clarify any incorrect information. Any hypertext links to other sites or vendors are provided as a convenience only. We have no control over those sites or vendors and cannot, therefore, endorse nor guarantee the accuracy of any information provided by those sites or the services provided by those vendors.