What is life insurance and how do I obtain it?

Answer 1

Life insurance is more properly called "death insurance", because payment is triggered upon the death of the person insured if the death is from a cause that is not excluded by the policy. Payment is made to the beneficiary named in the policy. If no beneficiary is named, or if that person is deceased and there is no contingent beneficiary named, proceeds are paid to the estate of the person insured under the policy.

There are 2 primary types of life insurance: term and whole life. Term insurance is considered to be "pure protection" in that there is no savings element. As such, it is less costly than whole life. It is purchased in a stated amount (for example, $50,000), and for a stated period of time (for example, 20 years). There are variations as to whether the premium remains the same for the entire term, or increases over the term. Proceeds are payable if the insured dies while the policy is in force. If he/she does not, nothing is paid and no value has accumulated.

Whole life insurance has a savings element. This means that some of the premium pays for the protection, and some goes into somethink akin to a savings account. The value of the latter accumulates slowly at first, but the rate picks up as the policy remains in force. Often, the insured is given options as to how to apply the savings element, such as into a selection of mutual funds.

In both types of insurance, the insured may be able to discuss additional options, for an additional premium. A couple of these include: (1) a guaranteed insurability option, whereby the insured is given the right to buy additional insurance at certain points in time without regard to then-current health; (2) waiver of premium, which forgives the payment of future premiums if the insured becomes disabled according to definitions in the policy. There are others.

Most insurers sell insurance through agents or brokers, who often advertise their services. It is critical for the consumer to ensure that the agent or broker is licensed to sell life insurance in the state. This can be done by contacting the state insurance regulator. It is also important to determine if the agent or broker is authorized ("appointed") by the insurer to sell its products. This can be determined through the state insurance regulator as well.