A life insurance policy is an agreement between an insurance company and a person (or legal entity). Each life insurance policy is different, and each state’s laws regulating insurance policies are different. In general, most insurance policies identify the following:
The insurer: Only certain companies can provide life insurance, and these companies are regulated by state insurance departments.
The policyholder: The person or entity (such as a family trust or a business) which owns (or “holds”) the policy. The policy can insure the holder, or it can insure another person.
The insured: The person whose life is insured.
The death benefit: The amount the insurer will pay when the insured passes away.1
The beneficiaries: The people or entities that will receive the death benefit. It can all go to a single person (e.g., a surviving spouse) or it can be divided by percentage among many different people and entities (e.g., three children could each get 30% and 10% could go to a charity).
The policy length: The time period that the insurer agrees to pay a death benefit. This can be a specific term (e.g., 10 or 20 years) or it can be permanent – a policy that lasts for the life of the insured for as long as premiums are paid.
The premium: The monthly or yearly payments needed to keep the policy in effect.
The cash value: Permanent life policies, like whole life insurance, have a cash value component that builds over time2 and can be cashed out or borrowed against.3 A term policy has no cash value.
What are the different kinds of life insurance policies and how do they work?
There are two basic types of life insurance: Term and permanent life insurance. A term life insurance policy provides coverage for a specific period of time, typically between 10 and 30 years. It is sometimes called “pure life insurance” because unlike the permanent policy or whole life insurance, there’s no cash value component to the policy – once the term is over, there’s nothing left.
Permanent life insurance provides coverage that lasts your entire life.4 Unlike term, it’s not a “pure life insurance” product because it includes a cash value component which helps make coverage last while the insured is alive and premiums are paid, and while providing other financial benefits. A portion of your premium dollars are invested, and your cash value grows tax-deferred5 over time – but the entire death benefit is immediately payable from the first day you have the policy. The cash value on the other hand, may take some years to build up to a significant amount.6
There are two main types of permanent insurance: whole and universal life. Whole life insurance is simpler – the premium remains the same for life, the death benefit is guaranteed,7 and the cash value grows at a guaranteed rate. Universal life insurance can be less expensive, but the premiums, death benefit, and cash value growth rate can vary, making the policy more complex.
What benefits do people get from life insurance at different stages in life?
Life insurance can be a powerful tool for protecting your financial confidence – and especially the financial confidence of the people who depend on you – so most adults should consider it. However, before you get a policy you should ask yourself: what type of financial protection do you need at this point in your life?
Term life insurance calculator
Figure out how much you may need and what it could cost
There’s one more thing you should know about life insurance: the longer you wait to buy it, the more expensive it typically gets. Don’t put things off. If you can purchase life insurance through your employer, that’s a great place to start. You can get a basic level of coverage at very attractive group rates – but don’t assume it’s enough.
Life insurance is one of the most consequential financial purchases you can make – and it’s worth taking the time to look into all your options in order to get the coverage that best fits your needs. If you have a financial representative you trust, talk to them about your needs. If not, Guardian can connect you with a financial representative who will listen to your needs, tell you about the best ways to meet those needs within your budget, then help you decide. You can also get an online quote using our term life insurance calculator.
If you are an employee, taking advantage of your benefits at work is a smart and affordable way to get the financial protection you want for yourself and your family. Contact your HR department to review your benefit details and determine how much life insurance is available to you. Your employer may provide life insurance as a benefit, or you may opt to pay for additional life insurance through payroll deductions.
How can a life insurance policy be tailored to my needs?
Almost all life insurance policies have optional features called riders that can provide valuable added benefits that tailor the policy to your needs.12 For example, Guardian has riders that can help protect family assets by paying for chronic care and end-of-life needs while the insured is still alive.
1.How can I cancel my policy before it’s approved?
Ans: Call up the company that you took out the policy with and tell them you would like to cancel.
2.Can a life insurance policy be changed to a different type of policy?
3.Should I cancel life insurance on a young adult?
Ans:Yes. You can cancel the life insurance if you feel it necessary.