Life Insurance 101: What is life insurance?

Your Life Insurance Primer

Life Insurance 101

What Is Life Insurance?

Life Insurance is a contract between a policyholder (such as yourself) and an insurer (such as AMA), where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for premium payments, in the event of the insured person's death. Life policies are legal contracts. Life insurance is a good way to protect your survivors and dependents against financial struggles due to loss of your income.

Two basic categories of Insurance

There are two basic categories of life insurance:

Permanent: Permanent means there is no ending date and your premium price never changes. Universal and Whole life insurance are both types of permanent insurance.
Temporary: Temporary means there is an end date to your policy and/or the price can increase. Term insurance falls under this type.

What does Universal, Term and Whole mean?

These terms refer to three basic types of life insurance:

Term: Term (sometimes called Multi-Term) life insurance gives you fixed-rate coverage for a specified period of time (usually 10 or 20 years, but there are other options). Term life insurance provides financial coverage ― such as mortgage and debt protection, and income loss coverage to loved ones ― in case of premature death.
Whole: Whole life insurance gives you just that ― insurance protection for your whole life, with a premium that remains level. Whole life insurance protects your family while also building cash value, so you’re protecting your family and working towards your long-term financial goals.
Universal: Universal life insurance is our most flexible insurance protection, and offers both permanent and term coverage with flexible premium and investment options.

What is each type best for?

Temporary (such as Term) is best if:

You only need insurance for a fixed amount of time, such as to cover a debt, so in the case of your death your dependents are covered. For example, say you have a mortgage that you’ll have for the next 20 years or so. But you don’t want lifelong coverage because you have savings or investments or you don’t think your dependents will need any more after you pass. You want a 20-year term policy so your dependents wouldn’t be left paying off your mortgage if you pass away, but after you pay off the debt, you’ll also end the 20 year term insurance and not be paying unnecessary premiums now that the debt is gone.

Permanent (such as Whole or Universal) is best if:

You want insurance for your whole life, so that your beneficiaries receive a death benefit when you pass away. Permanent insurance also has the potential to accumulate a cash value over time (meaning the death benefit grows over time). Premiums are generally higher than term insurance, because these products never expire.

How do I choose what is best?

The best way to choose life insurance is by looking at your individual needs. How much money will your dependents require if you pass away? Do you have savings to cover final expenses? Do you want to leave your heirs a life insurance inheritance? Do you have a spouse that will require financial help if you die? Do you have debts you don’t want to leave to your children?

The way to get the best value out of your life insurance is to match it to the amount of time you want it to cover. Don’t buy a policy that lasts longer than you need it. Conversely, you also don’t want to buy short term insurance, if what you really need is something to cover your whole life.

Keep in mind that life insurance is a bit complicated when you’re trying to talk in generalizations, and it makes a lot more sense when you can relate it to your personal situation. Our life advisors are here to help you understand it and find the coverage options that are perfectly suited to you, so the best way to choose your life insurance is with an advisor by your side. Get an online quote today or  schedule an appointment and let our experts make the process easy on you.

  • Life Insurance
  • Type
  • Expires
  • Price
  • Best For
  • Term
  • Type: Temporary
  • Expires: Yes
  • Price: Starts very cheap, increases exponentially as you age. Can increase, but the amounts are guaranteed in advance.
  • Best For: Providing money so your beneficiaries can pay off your debts if you die before paying them off, or providing financial assistance to your dependents if you pass away.
  • Whole
  • Type: Permanent
  • Expires: Expires: No
  • Price: Stays level your whole life.
  • Best For: Making sure you have money to leave to dependents after your death. Has a built-in cash value that increases the value of your policy over time
  • Universal
  • Type: Permanent
  • Expires: No
  • Price: Stays level your whole life.
  • Best For: Making sure you have money to leave to dependents after your death, insuring an inheritance. Has the ability to invest money as well. Best for those who want more flexibility in premium payments than a Whole Life policy