Life insurance basics with TruStage
You might already know why you should get life insurance (and if you don’t, read our Introduction to Life Insurance for starters), but the research is making things more confusing by the second.
We know just how confusing and complicated life insurance can be. We also know it’s our responsibility to pass on that knowledge to you and help you understand the ins and outs of your policy.
Here’s our TruStage breakdown of the basics of life insurance.
Common Words and Phrases in Life Insurance
The beneficiary of a life insurance policy is the person, organization or trust that you define as receiving the life insurance payout. If you take out a $10,000 policy and name your child the sole beneficiary, when you die, they get $10,000.
You can also assign multiple beneficiaries to your policy and define just how much of the policy they’ll receive. For example: John takes out a $25,000 life insurance policy. He names his wife and his two sons as the beneficiaries of his policy, but he specifies that his wife will receive 50% of the payout and each of his sons will receive 25% of the payout. John dies, and his wife gets $12,500, while each son gets $6,250.
A death benefit is the money paid upon the death of the insured. It’s usually a payout of the full coverage amount defined in the policy (a $10,000 policy pays a $10,000 death benefit).
The face value of the policy is simply the coverage amount the policy is worth. So, the face value of a $10,000 policy is $10,000. This is usually the same amount as the death benefit.
For most whole life insurance policies, when you pay your premiums some of that money goes into an investment account. The money in this account is the cash value of that life insurance policy. If you cancel a policy, you can receive the cash value of the policy as payment instead of the face value.
Types of Life Insurance
There are two major kinds of life insurance: term and whole. The biggest difference is how long they last, although there are some smaller differences like premium rates and loan options.
Term life insurance. Term life coverage provides protection for your family for a period of time and then ends. It lasts a certain number of years—usually 10, 20 or 30—or until you reach a certain age—say 80 years old, and it tends to be cheaper than whole life. If you pass away during the term, your beneficiaries get the money from your death benefit. People often choose term life so that their family is covered during the period of time when they expect their bills and expenses to be at their highest—for example, while kids are going to school and college.
Whole life insurance. Whole life coverage lasts—you guessed it—your whole life, as long as you keep paying your bill. When you pass away, your beneficiaries receive the death benefit payment. People often choose whole life insurance because they want to be certain their families will be protected no matter when they die and because the price they pay for whole life insurance doesn’t go up as they grow older. Most whole life insurance policies accumulate cash value, unlike term, so you sometimes have the option to take out a loan against it if you need to.
If you already have a term policy and are reaching its end, it may be possible to convert it to whole life so you aren’t left without life insurance if you outlive your policy.
How to learn more about life insurance
Life insurance may seem complicated, but it’s not that hard once you know the basics. Of course, we are happy to help. You can also use the TruStage Life Insurance Calculator to compare different types of insurance and learn more about your options.
What are the different types of life insurance?
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