Your ultimate life insurance guide

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  • Life insurance
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It can be intimidating to talk about, but the fact is: life insurance provides much-needed peace of mind for both policyholders and their loved ones. Young professionals, new parents and people planning for retirement are commonly sold on the benefits of it, but the usefulness isn’t limited to those demographics. This life insurance guide will help to demystify this type of insurance and help you to determine if it’s right for you.

What is life insurance?

Life insurance is a contract between an individual and an insurance company. When the individual dies, the insurance company pays an agreed-upon amount of money (the death benefit) to the individual’s beneficiary. Think of it as a financial protection for your family. The death benefit can pay for your funeral, replace income that you’re no longer bringing in, pay off a mortgage or be used for whatever else your family needs to stay financially on their feet without you.

What is permanent life insurance?

Permanent life insurance, also known as whole life insurance, is designed to provide lifelong coverage. It offers both a death benefit and a cash value component that accumulates over time. The cash value grows tax-deferred, meaning that you can borrow against it or use it to pay premiums later in life. While permanent life insurance tends to have higher premiums than term life insurance, it provides lifelong coverage and potential investment growth.

What is term life insurance?

Term life insurance provides coverage for a specified period, usually 10, 20 or 30 years. Unlike permanent life insurance, it does not accumulate cash value. Term life insurance offers a straightforward and cost-effective option for individuals looking for coverage during specific periods of their lives, such as when they have dependents or outstanding debts. It is a more affordable and flexible option than permanent life insurance.

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How does life insurance work?

Policyholders pay premiums to their insurance company based on their age, health, lifestyle and coverage amount. Upon their death, the insurance company pays the death benefit to designated beneficiaries. Here's a simplified guide to life insurance:

  • Select a policy – Choose the type of life insurance policy that suits your needs – permanent or term – and the coverage amount.
  • Pay premiums – Pay regular premiums based on your policy terms. These can be monthly, quarterly, annually or according to your specific policy terms.
  • Receive death benefit – In the event of the policyholder's death, the insurance company pays the designated beneficiaries named in the policy.

When considering a life insurance policy, you’re likely to run into these terms:

  • Designated beneficiaries – The people who will receive the death benefit. These are typically family members, such as a spouse, children or other dependents, but they can also be organizations or charities.
  • Policy terms and conditions – These may include the coverage period (for term life insurance), exclusions and any additional features or riders (that is, amendments or add-ons) that may be included.
  • Premium determination – The premium amount that you will pay is determined based on various factors, including the policyholder's age, health, lifestyle choices, coverage amount and the type of policy selected. Younger and healthier individuals typically pay lower premiums.
  • Medical exam – As part of the underwriting process, you may be required to have a medical examination or provide medical records to determine if you’re eligible for a policy and what your premium should be.
  • Policy renewal – For term life insurance, the policy is active for a specific period (term) and must be renewed if you want to maintain coverage beyond the initial term. Premiums may be adjusted at renewal based on factors such as age and health changes.
  • Cash value – Permanent life insurance policies may accumulate a cash value over time. A portion of the premium payments goes towards building this cash value, which can be accessed through loans or withdrawals at any time.
  • Claiming the death benefit – Beneficiaries must file a death claim with the insurance company that will typically include documentation such as a death certificate, to initiate the claim process. Once the claim is verified, the insurance company disburses the death benefit to the beneficiaries.

Who should buy life insurance?

Life insurance is valuable for anyone with financial dependents or obligations. If you have a spouse, children or other loved ones who rely on your income, life insurance protects them in the event of your unexpected death. Life insurance policies are also a good idea for people who have debt or business owners seeking to safeguard their companies.

How much life insurance do you need?

Determining the right amount of life insurance coverage depends on your unique circumstances. Consider factors such as your annual income, outstanding debts (including mortgages and loans), education expenses and your family's future financial needs (such as paying for your children’s education). The VIU by HUB Advisory Team can help you assess these factors and calculate an appropriate coverage amount to meet your family's needs.

Can you purchase life insurance with pre-existing conditions?

Yes, it's possible to purchase life insurance even if you have pre-existing medical conditions. However, the availability and cost of coverage may vary based on the severity of the condition, your overall health and other factors. Consider an option, like our partner Ethos, that doesn’t require a medical exam.

How do life insurance companies pay the death benefit?

When the policyholder passes away, the beneficiaries must file a death claim with the insurance company. The company will request certain documentation to verify that it is a valid claim. Once the claim is verified, the insurance company will pay the death benefit according to the policy's terms.

How do you choose the appropriate type of life insurance?

There’s no set guide to life insurance policy selection. Choosing the right type of life insurance depends on your unique circumstances, financial goals and preferences. Here are some factors to keep in mind when considering the type of life insurance that is right for you:

  • Coverage duration – If you have specific financial obligations or dependents that will require support for a limited period, such as paying off a mortgage or funding your children's education, term life insurance may be a suitable option. If you require lifelong coverage and want the potential for cash value growth, permanent life insurance may be more appropriate.
  • Budget – Consider your budget and the premium amount you can comfortably afford. Term life insurance generally offers lower premiums than permanent life insurance.
  • Financial goals – If you have specific financial objectives, such as leaving an inheritance or creating a source of savings, permanent life insurance policies with a cash value component may align better with your needs.
  • Health and age – Your health condition and age can impact the availability and cost of life insurance. If you have pre-existing medical conditions or are older, it may be more challenging to obtain affordable coverage. An experienced insurance agent, like a VIU by HUB Advisor, can help you find options that suit your situation.
  • Flexibility – Permanent life insurance offers greater flexibility, including potential cash value growth, the ability to borrow against the policy and a greater variety of premium payment options. Term life insurance, on the other hand, provides more simplicity and affordability.
  • Dependents – Evaluate your financial dependents, such as a spouse, children or aging parents. Life insurance should provide sufficient coverage to meet these needs and ensure their financial stability in your absence.
  • Risk tolerance – Permanent life insurance offers stability and guarantees coverage throughout your lifetime. Term life insurance provides coverage for a specific period, but it may not be sufficient if unexpected events occur later in life. Understanding your risk tolerance and preferences can help guide your decision.
  • Professional guidance – Consult with a knowledgeable insurance professional who can assess your specific situation, explain the different types of life insurance policies in detail and provide personalized recommendations based on your needs and goals. The VIU by HUB Advisory Team is a great resource for people considering purchasing or changing a life insurance policy.

What affects your life insurance premiums and costs?

Several factors can affect life insurance premiums. While no carrier releases their exact calculations, insurance companies generally consider these factors when determining premiums:

  • Age
  • Health
  • Lifestyle choices
  • Gender
  • Coverage amount
  • Policy type
  • Policy duration
  • Personal medical history
  • Family medical history
  • Driving record

What are the benefits of life insurance?

Beyond the obvious answer of providing financial protection for your loved ones, life insurance policies have tax advantages, potential cash value growth and flexible policy options. These financial benefits all pale in comparison to the knowledge that your family's financial future is secure.

How do you decide if you need life insurance riders?

Life insurance riders are additional features that can be added to your policy to enhance coverage. Riders can provide benefits such as accelerated death benefits, which allow you to access a portion of the death benefit if you are diagnosed with a terminal illness. Other riders may include coverage for critical illnesses or disability. It’s best to consult with an insurance professional to determine if riders are right for your situation.

Life insurance serves as a crucial financial safety net, protecting your loved ones and assuring their financial well-being in the event of your passing. By understanding the different types of life insurance, how they work and the factors that affect coverage and costs, you’re better equipped to make informed decisions.

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