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Life Insurance Basics

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18 Questions

What is the purpose of life insurance?

To pay out money to beneficiaries upon the policy holder's death

Who typically receives the death benefit from a life insurance policy?

The beneficiaries chosen by the policy holder

What is the main difference between Term Life Insurance and Permanent Life Insurance?

Term Life Insurance has a limited coverage period, while Permanent Life Insurance has a lifetime coverage

Who needs life insurance?

Anybody who has others depending on their income

What is a consideration when determining how much life insurance you need?

The amount of money needed to support the remaining family members

Why might a company not honor a life insurance policy?

If the policy holder commits suicide

What is a key feature of variable life insurance?

You get to choose your investments and the premium is fixed

Who is guaranteed life insurance typically suitable for?

Older people or those with health issues

What is a factor that affects the cost of a life insurance policy?

Your age and health issues

What is the consequence of lying about risk factors on a life insurance application?

Your policy may be voided, and beneficiaries won't receive the money

What is the main difference between variable life insurance and other types of life insurance?

You get to choose your investments

Why is it important to shop for a life insurance policy when you're younger?

Because you'll pay a lower premium

What is the main difference between Term Life Insurance and Permanent Life Insurance?

Term Life Insurance lasts for a specific period, while Permanent Life Insurance covers until death

What is the primary benefit of Term Life Insurance?

It offers large payouts at a lower cost

Who may consider purchasing Term Life Insurance?

Someone with a mortgage

What is Group Life Insurance typically a type of?

Term Life Insurance

What happens to Group Life Insurance coverage if you quit your job?

You no longer have coverage

Why is shopping for another policy on your own a good idea if you have Group Life Insurance?

Because Group Life Insurance coverage is normally for a low amount

Study Notes

Term Life Insurance

  • Lasts for a defined period of time (10, 20, or 30 years) specified at purchase
  • Pays beneficiaries a fixed amount if death occurs during the covered period
  • No payment is made if the policyholder outlives the term
  • Popular due to large payouts at a lower cost than permanent life insurance
  • Often chosen by young people with mortgages or young children

Group Life Insurance

  • Provided by employers as a benefit to employees
  • A type of term life insurance with low coverage amounts
  • Coverage ceases when the employee leaves the company
  • Policyholders may need to purchase additional coverage to meet their needs

Permanent Life Insurance

  • Covers the policyholder until death, as long as premiums are paid
  • Includes variable life and whole life insurance

Variable Life Insurance

  • A permanent life insurance policy with premiums invested in chosen assets
  • Fixed premium, but payout may vary based on investment performance

Guaranteed Life Insurance

  • Suitable for older people or those with health issues
  • No health questions asked, but premiums are higher and payouts are lower
  • A good option for those who delayed buying a policy and now face higher prices

How Life Insurance Works

  • A contract between the policyholder and the insurance company
  • Policyholder pays premiums, and the company pays beneficiaries upon death
  • Beneficiaries are typically family members
  • Most companies do not honor policies if the policyholder commits suicide

Who Needs Life Insurance

  • Anyone with dependents who rely on their income
  • Provides financial support for dependents in the event of the policyholder's death

Determining Life Insurance Needs

  • Consider funeral costs, mortgage/rent, schooling, bills, and lifestyle
  • Aim to cover expenses and maintain dependents' lifestyle

Factors Affecting Life Insurance Cost

  • Age
  • Health issues
  • Activity interests (hazardous vs. low-risk)
  • Tobacco use
  • Lying about these factors can void the policy

Test your knowledge of life insurance contracts, including how they work and the benefits they provide to beneficiaries. Learn about the exchange of regular payments for a death benefit and more!

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