Life Insurance 101: A Guide to Life Insurance

by Will Koch

Life insurance provides your family with money to pay your debt, mortgage, funeral expenses and more if you pass away. You pay your insurance company a premium, or bill. In return, your beneficiaries (the person/people you select) will receive the death benefit when you pass away. Use this article as your quick overview highlighting: 

• The different types of life insurance
• What life insurance is right for you and your family
• The key reasons why you need it

Key takeaways

• Overview of the three types of life insurance COUNTRY Financial offers
• An explanation of how life insurance works
• Where are you in life today? Your stage of life can help you decide what type of life insurance is right for you
• How different factors can impact the cost of life insurance

Two types of life insurance

Term life insurance

Term life insurance guarantees coverage for a specific amount of time, like 10, 15, 20, or 30 years. If you pass away during that time, your beneficiaries recieve the death benefit from the policy.

Permanent life insurance

Permanent life insurance includes whole life or indexed universal life, and provides lifetime coverage that builds cash value, similar to how you build equity in your home.

Whole life insurance

When you buy a whole life insurance policy, part of the premium is set aside to grow into cash value, similar to building equity in your home.

Indexed universal life insurance

Indexed universal life (IUL) insurance offers premium and coverage flexibility with the potential for more cash value growth because it's linked to the performance of a stock market index. 

How does life insurance work? 

You choose the amount of protection you and your beneficiaries need if you pass away.

If you choose a term policy...

You select a policy term (10, 15, 20, or 30 years) and the amount of money you’d like your beneficiaries to receive if you pass away during that time.

If you choose a permanent policy…

If you continue to make necessary payments and don’t cancel your policy, you’ll receive lifetime coverage. You can also access the policy’s cash value (through loans and withdrawals, also known as the living benefits of life insurance) while you’re still alive, which is yours to use however you want.¹

Do I need life insurance? 

Life insurance isn’t a one-size-fits-all product. People need life insurance for different reasons, but here are the top five.*

1. Burial/final expenses 
2. Wealth transfer 
3. Income replacement 
4. Pay off mortgage
5. Supplement retirement income

*Source: 2023 Insurance Barometer Study, Life Happens and LIMRA

What type of life insurance is best for me? 

It depends what stage of life you’re in. Below are some common life stages that help people find the right life insurance. 

If you’re a first-time homeowner

Many people feel life insurance isn’t something they need or can afford. We can help put a plan together to help protect your mortgage and pay off any debt you have if you pass away. A term policy provides the coverage you need with options to fit your budget. 

If you’re married, but don’t have kids (yet)

You share a home, finances, and dog-walking duty. With a combined income, you can put a dent in your student loans, pay off your car, and make some upgrades to your home. You’re still on a budget, but you’re putting some money away. If you pass away, a term or permanent (whole or indexed universal) life insurance policy can help your partner stay in your home, pay off debt, provide for funeral expenses and more.

If you’ve got young kids

Life is a blur of kindergarten, after-school activities, nap time and kid-friendly TV. You need a bigger car, house and bank balance to handle it all. If you pass away, you want your kids to stay in the same house and continue their education. Term life insurance can help provide you with that security at a price that works with your current budget.

If your kids are almost grown

The kids are older, you’re close to retirement and you find yourself with more time, and money. As your kids start their lives, you want them to have everything they need, which includes being prepared if you pass away. A permanent (whole or indexed universal) life insurance policy can help provide them with money for your funeral, mortgage, debt and more. Plus, you can use the cash value that builds in a permanent life insurance policy while you’re alive to: 

1. Help fund a child’s education 
2. Build up an emergency fund 
3. Supplement your retirement 
4. Start a business or expand an existing one 

If you’re ready to retire

The kids are out of the house, you’ve picked up some new hobbies and you’re about to be a grandparent. As you think about how to pass on your wealth and take care of your partner if you pass away, you may want to review your life insurance. If you don’t have life protection, a term life insurance policy may be a good option to cover your income until retirement. Permanent life insurance is a great way to leave a legacy and build cash value. 

How much life insurance do I need?

It’s different for everyone. The amount of life insurance you need depends on several things, like how many kids you have and their age, your mortgage, income and more.

Pro-Tip

"Many financial advisors recommend people have life insurance equal to 7-10 times their annual income."

    – Sheila Melzer, Vice President and Chief Actuary of Life and Health at COUNTRY Financial

       Policy amount = Your annual income x 10

Use our Life Insurance Calculator to find out exactly how much you need. 

What factors impact the cost of life insurance?

Several things affect the cost of life insurance, but these are some of the most common.

Age

Your health can decrease with age while rates increase. So, life insurance is never as affordable as it is today. 

"40% of people with life insurance wish they'd purchased when they were younger."

    -- Source: 2021 Insurance Barometer Study, Life Happens and LIMRA

Occupation

If you work in a dangerous profession, that could impact the price you pay for life insurance. 

Health

In general, the healthier you are, the lower the premium. 

Family medical history

Talk with your rep for specifics, but your relatives' health history could impact the cost of your life insurance policy. 

Lifestyle

Do you make lifestyle choices that could impact your short and long-term health? That could impact the price you pay.  

 

Updated 10-6-23