What is life insurance?
Life insurance is a contract between you and an insurance company. You pay premiums and if you die while the policy is active, the insurer pays a death benefit to the people or organizations you name as beneficiaries. In most cases, that death benefit is paid free of federal income tax.
Beneficiaries can use the money however they need: replacing your income, paying off a mortgage, covering funeral costs, paying for childcare or college or settling debts.
Who needs life insurance?
You may need life insurance if someone depends on your income or the work you do at home. That often includes:
- Parents of young children
- Married couples or partners who share bills and a mortgage
- People with co-signed loans or significant debts
- Business owners with partners or key employees
- Anyone who wants to leave money to family or a charity
If you're single with no dependents and no debts, you may need little or none. Coverage through work can help, but it often equals only one or two times your salary and usually ends if you leave the job.
Term life insurance
Term life insurance covers you for a set period, typically 10, 15, 20 or 30 years. If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, coverage ends and no benefit is paid.
Term life is usually the most affordable way to buy a large amount of coverage. Many people match the term to their biggest obligations, such as until the kids finish school or the mortgage is paid off. Some term policies can be converted to permanent coverage later without a new medical exam.
Good fit for: young families, homeowners with a mortgage and anyone who wants maximum coverage for the lowest premium.
Whole life insurance
Whole life insurance covers you for your entire life as long as premiums are paid. Premiums stay level and the policy builds cash value at a guaranteed rate. You can borrow against the cash value or surrender the policy for it, though doing so reduces the death benefit.
Whole life costs much more than term for the same death benefit. In exchange, you get lifelong coverage and predictability.
Good fit for: people who want guaranteed lifelong coverage, estate planning or leaving a set amount to heirs.
Universal life insurance
Universal life is also permanent coverage, but with more flexibility. You can often adjust your premium payments and death benefit within limits. Cash value grows based on an interest rate set by the insurer or in some types, a market index.
That flexibility comes with responsibility. If you pay less than needed or interest rates fall, the policy could lapse unless you pay more. Guaranteed universal life focuses on the death benefit with little cash value and is often priced between term and whole life.
Good fit for: people who want permanent coverage with some control over payments.
Term vs. whole vs. universal life at a glance
Term vs. whole vs. universal life at a glance| Feature | Term | Whole | Universal |
|---|
| How long it lasts | Set number of years | Lifetime | Lifetime, if funded |
|---|
| Premiums | Lowest, level for the term | Highest, fixed | Flexible within limits |
|---|
| Cash value | None | Yes, guaranteed growth | Yes, varies |
|---|
| Best for | Covering years of big obligations | Lifelong guarantees | Lifelong coverage with flexibility |
|---|
How much life insurance do you need?
A quick starting point is 10 to 12 times your annual income, but your real number depends on your situation. A more careful estimate adds up:
- Debts: Mortgage balance, car loans, credit cards and other debts
- Income: Years of income your family would need replaced
- Education: Future college or school costs for your children
- Final expenses: Funeral and end-of-life costs
Then subtract savings, existing life insurance and other resources your family could use. We'll walk through the math with you.
How life insurance pricing works
Insurers set your price through underwriting. Common factors include:
- Age and sex
- Health, medical history and family history
- Tobacco or nicotine use
- Height and weight
- Occupation and risky hobbies, like private flying or scuba diving
- Coverage amount and policy type
Some policies need a medical exam. Others use health questions and data checks instead, which can be faster. Buying younger and healthier usually locks in a lower price.
How to compare life insurance quotes
When we compare life insurance policies for you, we look at:
- Death benefit and term length side by side
- Whether premiums are guaranteed for the full term
- Conversion options from term to permanent
- Riders, like waiver of premium or accelerated death benefit
- The insurer's financial strength ratings from independent agencies
How ChaCha helps
We help you figure out how much coverage makes sense, compare quotes from the life insurance companies we work with and guide you through the application and underwriting. We'll also remind you to keep beneficiaries up to date after big life events.
ChaCha Insurance is an independent insurance agency. Quotes are free and asking for one doesn't start or change any policy.
