Life insurance is a contract between you and an insurance company that pays an income tax-free death benefit to your designated beneficiaries upon your death in exchange for premium payments.
Here are the questions about life insurance we receive most often and our brief, basic answers.
The need for life insurance
Q: What's the purpose of life insurance?
The primary reason to own life insurance is so that your beneficiary(ies) can receive a monetary payout — called the "death benefit"1 — if you pass away while you are covered under the policy.
How much life insurance coverage you purchase is up to you. You can purchase an amount of coverage to correspond with what you'd like the death benefit to be used for — to pay for your final expenses, make up for the loss of your income so your family can cover their living expenses, finance care for a dependent with special needs, pay off debts or pay for your kids' college tuition.
Q: What is a death benefit?
A death benefit is the money paid by a life insurance policy to your designated beneficiaries when you pass away. This payment is typically tax-free and can be used by your beneficiaries for any purpose, such as covering living expenses, paying off debts or funding future goals like education.
Q: What's the difference between term and permanent life insurance?
Term life insurance provides coverage for a specific period, such as 10, 20 or 30 years. If you pass away during the term, your beneficiaries receive the death benefit. Term policies are typically more affordable but do not build cash value.
Permanent life insurance (including whole life and universal life) provides coverage for your entire lifetime as long as premiums are paid. These policies also accumulate cash value over time that you can borrow against or withdraw. Permanent policies cost more than term but offer lifelong protection and a cash value component.
Q: Do I need life insurance while I'm young and single?
Whether you want to purchase life insurance is your decision. If you have debt, such as student loans, you may wish to have life insurance to help pay off those debts, as well as pay your funeral costs — which average $8,300 in the U.S.2
A practical reason to purchase life insurance while you're young is because it is usually less expensive when you are young and healthy. Life insurance will only become more expensive as you age, so it may not pay to wait.
Q: I'm married. Do we both need life insurance?
There may be good reasons for both spouses to have life insurance coverage.
If your household is being supported by two salaries, the death of one spouse may cause financial hardship for the other, adding to the emotional pain.
If you have a family, this financial stress can seem even more overwhelming. If your spouse is not employed now, they may need to start working if you die. And they will probably encounter new expenses as they learn to manage as a single parent — such as child care and household maintenance.
Life insurance can provide immediate stability in the short run, and make things like paying for kids' college education possible in the long run.
Q: How much life insurance do I need?
While the amount of life insurance you need depends on many factors, chances are very good that you need more than the amount of coverage you may receive automatically through your employer, which is often equal to your annual salary. A common guideline is 10-15 times your annual income, though your specific needs may vary.
If you are young and without dependents, coverage equal to one year's salary may be enough to cover your funeral costs and some of your debts.
However, if you're middle-aged with a family that depends on your income to maintain their lifestyle, you'll likely need much more coverage.
You may also fall somewhere in between. Our life insurance needs calculator can help you estimate the amount recommended for your situation.
Q: Can I have more than one life insurance policy?
Sure! You can have multiple policies from multiple sources.
For example, although you may automatically receive life insurance coverage from your employer, you may decide you need more coverage.
In that case, you may choose to enroll for more coverage through your employer's plan and pay the premiums through payroll deduction. Or you can choose to purchase a policy through your bank, credit union, financial professional or insurance agent.
In the event of your death, both policies would then pay a death benefit to your beneficiaries.
The life insurance application process
Q: How do I choose a life insurance company?
If you're enrolling for coverage at work, your employer chooses the insurance company for you.
If you're working with a financial professional or insurance agent, they may sell life insurance from multiple insurance companies, or just one if they're affiliated with a specific insurance company.
There are third-party organizations that rate the performance and financial strength of insurance companies. Search the websites of life insurance companies you are considering to find financial strength ratings from the rating agencies A.M. Best, Fitch Ratings, Moody's Investor Service, and Standard & Poor's. You can check our ratings here.
Q: How do I know if a life insurance company is financially stable?
To evaluate a life insurance company's financial stability, check ratings from independent rating agencies. Look for ratings from A.M. Best (which specializes in insurance companies), Fitch Ratings, Moody's Investor Service and Standard & Poor's. These agencies assess an insurer's ability to pay claims and meet financial obligations. Higher ratings (such as A++ or AAA) indicate stronger financial stability. You can typically find these ratings on the insurance company's website or by searching the rating agencies' websites directly.
Q: What is involved in the life insurance application process?
If your employer offers life insurance, you can typically enroll as a new employee and be approved automatically, without having to go through what insurance companies call "medical underwriting" or "evidence of insurability."
If you are applying for life insurance on your own or after your initial enrollment for benefits through your employer, the application process usually consists of the following steps:
- You complete an application
- The insurance company may ask you to complete a health questionnaire
- You may be asked to complete a physical exam
- The insurance company informs you if your application for coverage is accepted or declined
The length of the process typically ranges from 2-4 weeks for simple applications to 6-8 weeks for more complex cases, depending on how much coverage you've chosen, your health history and how you applied for coverage.
Q: What is underwriting?
Underwriting is the process insurance companies use to determine whether they can insure an applicant, at what amount and at what cost to the insured person.
The underwriting for coverage you enroll in at work is typically faster and less rigorous than if you are buying coverage individually from another source.
Since no two people are the same, underwriters analyze the risk factors unique to each applicant, which may include age, gender, current health, medical history, occupation, lifestyle habits and more.
If the insurance company feels you present a greater risk — for example, if you are in poor health, have a dangerous occupation or are elderly — you may pay more for life insurance than a young, healthy individual — or be declined coverage entirely.
Q: Can I get life insurance without taking a medical exam?
One of the benefits of having life insurance through your employer is that a physical exam is not always required.
Employer plans typically offer guaranteed coverage of some kind, either in the form of coverage they provide for you automatically, or coverage you can select when you're first eligible for benefits as a new employee.
After that initial period, it is common to complete a health questionnaire or medical exam when you enroll for coverage at work.
If you're purchasing an individual life insurance policy through a financial professional or insurance agent, or on your own, you may be required to have a physical exam before you are insured.
In both cases, an exam is usually done in your home by a nurse, technician or paramedic, who will ask some questions about your medical history, take your vital readings and take blood and urine samples.
The insurance company may also request medical records from your physician or other healthcare providers to evaluate your level of risk.
The life insurance claims process
Q: What is the process to file a life insurance claim?
If you know that you are the beneficiary on the life insurance policy of someone who has passed away, you will need to submit a claim before you can receive the death benefit.
To submit a claim, contact the insured person's life insurance company to notify them of the death. The company will provide a claim form that must be completed by the beneficiary named in the policy. The form must then be submitted with a certified death certificate.
It typically takes 7-30 days to receive a check for the death benefit on a life insurance policy once you have submitted the claim, and many insurance companies now offer direct deposit/EFT for claim payments.
If you need to file a new life insurance claim with Securian Financial — or check on an existing claim — get started here.
Q: What kinds of things might cause a life insurance claim to be denied?
Sometimes an insurance company will investigate a death before paying the death benefit. This typically does not happen often, as most life insurance companies are sensitive to and want to minimize the emotional burdens being experienced by family and loved ones.
These are some factors that may cause a claim to be denied:
- The policy is no longer in force due to a lapse in premium payments or other factors, so the insured is not covered
- The manner of death is outside the terms of the contract (for example, some companies will not pay out in the case of a suicide that happens within a short time after taking out a policy)
- A question of double indemnity (if applicable per the policy)
- Incomplete or falsified information provided during the application process
Q: Is there a way to find out if a loved one had life insurance?
Unfortunately, there is no one organization that tracks life insurance policies — so determining whether a family member owned life insurance requires research.
Here are some steps to follow to track down whether someone close to you was covered by life insurance:
- Search their personal files for a copy of a policy or receipt from a life insurance company.
- Review cancelled checks, bank records and credit card statements to see if they made premium payments through one of those accounts.
- Contact their employer(s) to see if they were covered under a group policy.
- Ask their insurance agent if they had one, as that person may be aware of a policy. If not, contact the insurance companies that issued their homeowner's, auto or other policies. It's possible they may have life insurance through the same company.
- Inquire with their bank or credit union about whether they took out a policy through that institution, or listed it as an asset on a credit application.
- Check with the probate court of the state they lived in. If their estate went to probate, a life insurance policy might be listed as one of their assets.
- Search their state's unclaimed property records. In some cases, insurance companies are required to pay the death benefit to the state if someone died without any known heirs.
