Life Insurance

The purpose of life insurance is to provide financial protection to your loved ones after your death. Certain types of life insurance can also function as an investment, because they build cash value and count as a financial asset while you’re alive. 

Combined with other investments, retirement, and estate planning, life insurance is a key part of a sound financial plan. As with all insurance products, there are a variety of policies available to meet your unique situation and needs. You’ll want to take the time to explore what your options are to ensure you’re purchasing a policy that’s right for you.

You can learn more about life insurance by visiting the National Association of Insurance Commissioners (NAIC) website or by reading their Life Insurance Buyer’s Guide

The Two Types of Life Insurance

Before purchasing life insurance, you need to understand the difference between the two basic types of life insurance policies:

  • Term Insurance – This type of policy covers you for a term of one or more years. It pays a death benefit only if you die during that term. Term insurance generally offers the largest insurance protection for your premium dollar. It does not typically build up cash value. Additionally, it may not be renewable at the end of the term, or may cost considerably more to continue.
  • Cash Value Life Insurance – Cash Value Life Insurance goes by several names, such as whole life, variable life, and universal life. This type of policy provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums for permanent life insurance policies tend to be higher.

10 Things to Know

To help you understand the basics of life insurance and, hopefully, avoid some of the common pitfalls, here are 10 things to keep in mind when purchasing life insurance.

  • Review Your Insurance Needs With an Agent

    A licensed insurance agent can help you evaluate your insurance needs and give you information about policies available to you.

  • Decide How Much Coverage You Need

    How much of the household income do you provide? Does anyone else depend on you financially? How will your family pay final expenses and repay debts after your death? Answering questions like these will help you decide how much coverage you need, for how long, and what you can afford to pay.

  • Assess Your Current Life Insurance Policy

    If you already have a life insurance policy, do not cancel it until you have received the new one. You then have a minimum period to review your new policy and decide if it is what you want. Also, you may not have to cancel your current policy; in fact, you may be able to change it to get the coverage or benefits you want now.

  • Compare the Different Kinds of Insurance Policies

    Keep in mind that there are two basic types of life insurance: term insurance and cash value life insurance. Term insurance generally has lower premiums in the early years, but does not build up cash value that you can use in the future. Cash value life insurance may be one of several types: whole life, universal life, and variable life. Your choice should be based on your needs now and in the future, and what you can afford.

  • Be Sure You Can Afford the Premium Payments

    Before purchasing a life insurance policy, be sure that you can handle the premium payments. Can you afford the initial premium? If the premium increases later, will you still be able to afford it?

  • Have an Insurance Agent Help You Evaluate the Future of Your Policy

    Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. Ask your agent for a year-to-year display of values and benefits so you’ll know how quickly the policy’s cash value will grow.

  • Keep Your Current Policy

    Replacing your insurance policy may be costly. Do not drop one policy and buy another without thoroughly comparing the new policy to the one you have now.

  • Understand Renewal Policies

    You can renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at a certain age.

  • Read Your Policy Carefully

    Do premiums or benefits vary from year to year? How much do the benefits build up in the policy? What part of the premiums or benefits is not guaranteed? What is the effect of interest on money paid and received at different times on the policy? These are all questions that you should be able to answer by reading your policy thoroughly. Your agent can help you understand things that are unclear.

  • Review Your Life Insurance Program Every Few Years

    How will inflation affect your future needs? Do you need more insurance when your family size increases? Review your policy with your agent every few years to keep up with changes in your income and needs.

Insurance Complaints

If you have a complaint about your insurance provider or agent, or how a claim is being handled, the Department of Insurance’s Consumer Services Division may be able to help you.