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Kristine Lee

Manager, Content and Data

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  • Licensed Insurance Agent — Property and Casualty

Kristine is a licensed insurance agent who joined The Zebra in 2019 as an in-house content researcher and writer. Before joining The Zebra, she was a…

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Mark Friedlander

Director, Corporate Communications, Insurance Information Institute

Mark Friedlander has over 30 years of experience in the insurance industry. He is the Director, Corporate Communications, at the Insurance Informatio…

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Ross Martin

Manager, Content Quality

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  • Licensed Insurance Agent (former) — Property and Casualty

Ross joined The Zebra as a writer and researcher in 2019. As a licensed insurance agent, he specializes in writing insurance content to help shoppers…

What is life insurance?

Life insurance is a contract between you and an insurance company that promises a monetary payout, commonly called a death benefit, to designated beneficiaries — typically family members — after you pass away. As long as you’ve paid your premiums and the policy is active upon your death, the death benefit will be paid out.

do I need life insurance
Q: Do I really need life insurance?

A: YES - unless you are single and financially stable without dependents or a business. Life insurance is especially important for parents, sole financial providers, and those paying off debt. Learn more about who needs life insurance here. Or, read on to gain further insight into how life insurance works and get affordable quotes from top companies.

Key takeaways

  • Life insurance is a contract providing money to beneficiaries upon the policyholder's death.
  • It's important to compare life insurance quotes from multiple companies to ensure you are getting the best policy for the best price.
  • The process for obtaining life insurance typically involves submitting an application, participating in a phone screening, undergoing a medical exam, waiting for approval, and signing the policy.
  • The best type of life insurance for you depends upon factors like your health history, budget, preferred coverage duration, risk tolerance, investment preferences, and family profile.

Compare life insurance quotes

If you're looking for the peace of mind that comes with a term life insurance policy, The Zebra can help. Just enter your details below to start the process. We allow you to compare term life insurance policies from companies like Ethos and USAA to see which carrier offers the best terms and rates. Feel like you need a little more information first? Read on to learn what life insurance type will work best for you!

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How life insurance works

While the exact process might vary slightly from insurer to insurer, there are five steps that you can typically expect when applying for life insurance:

  1. Submit an initial application. In order to obtain life insurance, you must qualify by submitting an initial application that covers general information (e.g. proof of identity, contact information, proof of financial situation), your personal and familial medical history (e.g. surgical history, medical diagnoses), and your lifestyle (e.g. smoking habits, hazard level of your occupation).
  2. Participate in a phone screening. After your initial application is reviewed, they'll often follow up with a phone call where they confirm the provided information and discuss more questions related to your health and lifestyle. 
  3. Receive a medical exam. While not required by all insurance policies, many require an additional medical examination. This can include everything from the basics of weight and height to blood tests and even drug tests. 
  4. Wait. Your insurance company will also likely perform a soft credit check, pull your motor vehicle report, and check your prescription history. This and the previously gathered information will be used in the underwriting process to determine your final rating. 
  5. Confirm and sign your policy. If no other issues arise, then you just need to confirm and sign your policy!

Remember, once you finalize how much life insurance you need and your rate, you must keep paying your premium to keep the coverage in place.

How does life insurance work when I die?

After you pass away, your beneficiary must file a claim with the life insurance company and submit relevant documentation, such as a death certificate. The beneficiary may choose how the death benefit will be paid out to them — either via lump sum or annual payments. Each life insurance payment option is paid out tax-free.

What does life insurance cover?

Most causes of death are covered by life insurance, including natural causes, accidents, and illness.  Application fraud is the most common reason for denial of life insurance claims. See what is and isn't typically covered by life insurance below.

Life Insurance Covers Life Insurance Typically Does Not Cover
  • Accidental death
  • Terminal illness
  • Death by natural causes
  • Suicide within two years of the policy being issued
  • Murder of the policyholder by a beneficiary
  • War, work or lifestyle related exclusions

Many people are concerned about being denied life insurance coverage due to pre-existing conditions. While there are many conditions that can impact your chance to get coverage, individuals with pre-existing conditions can still find coverage in many instances. Coverage availability and limits for higher-risk individuals will differ from company to company. If you have a pre-existing condition, the best thing to do is to shop around to see what type of coverage you can receive.


Types of life insurance policies

Another factor to consider — aside from how much insurance you need — is what life insurance options are best for you and your family members. The two primary differences between these types of life insurance policies are the length of coverage over your lifetime and the potential to increase your death benefit over time via cash value.  

Permanent life insurance policies

Permanent policies remain in effect for your entire life (or at least as long as your premiums are paid). They also offer the benefit of building cash value. While often used interchangeably with "whole life insurance," cash value life insurance also encompasses other permanent life insurance policies such as universal life insurance.

With cash value life insurance, a percentage of every premium payment you make is diverted as tax-deferred cash value that accrues interest at the rate specified on your policy. This is separate from the death benefit and is available to be used while the policyholder is still living. Beneficiaries should not expect to receive both in the event of the policyholder’s death. Think of it as a savings account built into your whole life policy.

There are several benefits to cash value life insurance including:

  • It can be withdrawn tax-free as long as you keep paying for your policy and don’t surrender it.
  • It can be used to take out a low-interest loan against your own policy. Like other loans, you must pay interest until it’s paid off if you access cash value this way. Any remaining amount owed after you pass will be deducted from your death benefit.
  • It can be paid out if you surrender your life insurance policy. However, many life insurance companies charge a fee for this, and it may not be worth it if your policy is only a few years old — most of the growth in cash value happens the longer your whole life insurance policy matures, generally beyond 10 years old.

Universal vs whole life insurance policies

The two most common options for permanent life insurance policies are universal life insurance and whole life insuranceThe main difference between universal and whole life insurance policies is that the cash value is associated with a specific stock index instead of a fixed percentage. This leaves your cash value vulnerable to decline if the financial markets underperform.

Universal life insurance is often best:

  • If you prefer flexibility and customizability. Universal policies offer a more customizable and adjustable insurance policy as well as flexibility in premium payments, death benefit amounts, and investment options.
  • If you are interested in potential cash value growth tied to various investment options.

Whole life insurance is often best:

  • If you value simplicity and security. Whole life insurance offers a more straightforward policy structure with a guaranteed death benefit, fixed premiums throughout the life of the policy, and the security of a conservative and predictable investment component. 
  • If you want lifelong coverage and potential cash value growth.
  • If you are saving for retirement, caring for lifelong dependents, or have a high net worth.

 

Term life insurance

A term life insurance policy only covers you for a set number of years and is considered the most basic level of life insurance coverage you can buy. If you’re lucky enough to still be alive once the term policy expires, you must renew to keep the coverage in place and guarantee your beneficiary gets your death benefit once you do pass. Term life policies tend to be the cheapest type of life insurance. Most group life insurance plans include term life policies.

Term life insurance is often best:

  • If you have a limited budget. You may require a higher coverage amount for a lower premium than permanent life insurance options offer.
  • If you just want pure protection. Some would rather use an investment option offering a historically higher return.
  • If you anticipate a decrease in financial obligations over time. For example, those with mortgages or outstanding loans that only need coverage for a specific period, young families, or parents.
  • If you have temporary dependents. It is often wise for young families or parents to ensure income replacement and protect their children's future educational expenses until their dependents become financially independent. 
  • If you are younger or require coverage for less than 15 years.
Life Insurance Type Pros Cons
Universal Life Insurance
  • Lifetime coverage
  • Flexibility in premium payments and death benefits
  • More control over cash value returns
  • More expensive than term life insurance
  • Premiums can increase if cash value is insufficient
  • Requires ongoing monitoring and management
  • Can be complex and may have policy fees
Whole Life Insurance
  • Lifetime coverage
  • Simple policy structure
  • Cash value accumulation
  • Security offered by fixed premiums and predictable investment components
  • More expensive than term life insurance
  • Limited flexibility in adjusting coverage or premiums
  • May not be necessary for everyone's needs
  • Return rate is much lower than other investment options
Term Life Insurance
  • Affordable premiums
  • Simple and straightforward
  • Provides coverage for a specific term
  • Can be converted to permanent life insurance later
  • Allows you to pursue investments with a higher return than a cash value policy offers
  • No cash value accumulation
  • Coverage ends after the term expires
  • Premiums may increase upon renewal

Top factors that impact life insurance premiums

Insurance companies determine your premium based on several individual rating factors, including your age, gender, individual health, your family's health history, your lifestyle, and even your driving record and credit history. Factors affecting life insurance rates include:

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Age

One of the most important rating factors is your age. Unlike auto insurance, the younger you are, the cheaper your premium will be. This is because younger people are generally healthier and thus, less likely to die soon.

Gender
Gender

On average, women live longer than men. Insurers use this data to help price premiums. Insurance companies charge higher rates for men since they calculate premiums based on mortality risk.

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Personal health history

As previously mentioned, a medical exam of your mental and physical health is routine when you enroll in life insurance. This is another significant indicator of your mortality risk: those in poor health may pay higher rates than those who are in good health.

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Smoking

You will face a higher premiums if tobacco use is part of your lifestyle. Smokers are considered high-risk clients due to the myriad illnesses exacerbated by smoking.

family with small child
Family health history

Insurers will inquire about your immediate family’s history of illnesses to get an idea of what direction your health will take over time.

boat
Career, lifestyle, and hobbies

Some jobs are riskier than others — but the same applies to how you like to spend your leisure time as well. If you’re a pilot with a passion for skydiving and free climbing, your premium may reflect the elevated risks posed by your lifestyle.

speeding car
Driving, criminal, and credit records

Although these personal factors affect your premium to a lesser extent than the above, these are still used as risk indicators. For instance, you could be charged a pricier rate if you have a history of getting into car collisions. From the eyes of a life insurance provider, a bad driving record is associated with the heightened risk of the policyholder suffering an accidental death.


Is life insurance tax-deductible?

Life insurance premiums are generally not tax-deductible. One of the rare exceptions is business owners, who can deduct life insurance premiums paid for employees. However, this comes with a few more provisions; for example, you cannot deduct premiums if you own the business with your spouse and the business must not be named as a beneficiary on the policy.

 

Are death benefits taxable?

The death benefits payout beneficiaries receive is not considered taxable income. If your family is expected a death benefit of $1 million after you pass, they can expect the full amount. Many policyholders strategically plan to pay future family expenses tax-free — including college tuition or mortgage payments — by enrolling in life insurance.


Do I need life insurance?

If anyone is financially dependent on you, life insurance is always recommended — the earlier the better. It’s also worth it if you have assets, debt, or a business. Death benefits can be used by beneficiaries to pay for just about anything following the passing of the policyholder, including funeral expenses, childcare, mortgage payments, business debt, student loan debt, and inheritance or estate taxes. The cash value component can even be used to fund part of your retirement.

Life insurance could be a smart long-term investment for those who are:

  • The sole financial provider in a household
  • Parents, including stay-at-home partners, divorced or single parents, and parents of a special-needs child
  • Homeowners with a mortgage
  • Business owners
  • High net-worth individuals
  • Those paying off debt
  • Those concerned about funeral costs
  • Those looking to provide an inheritance

Evaluating your life insurance needs, understanding your options, and shopping around for life insurance quotes is the most effective way to find affordable rates. Having this important coverage is one of the best ways to ensure some financial security for your beneficiaries if anything should befall you — whether that be 50 years down the line or five.


Frequently Asked Questions

After submitting an initial application and undergoing a phone screening and (in many cases) medical exam, you will wait as the insurer gathers additional financial, driving, and medical information. Then, you simply confirm and sign your policy. Upon your death, your beneficiary will file a claim with your insurer and submit relevant documentation. As long as the policy is active upon your death, you have not submitted any fraudulent information, and you have paid your premiums on time, the death benefit will be paid out, tax-free, to your beneficiary in either a lump sum or annual payments.

The best life insurance for you depends upon your unique circumstances. Term life insurance is a cost-effective option for temporary coverage, while permanent life insurance (e.g. universal life insurance, whole life insurance) offers lifelong protection and potential cash value growth. Term life insurance is often best for those anticipating a decrease in financial obligations over time and just want pure protection. Permanent is typically best for those with lifelong dependents or who want to save for retirement.

The application and underwriting process for life insurance typically takes two to eight weeks. It can take even longer if you or your medical provider contribute incomplete or inaccurate information or if additional health issues are uncovered at any stage of the process.

About The Zebra

The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.

  • The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
  • The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
  • The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
  • The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.