What Is Life Insurance?

Kaycie Tyll

Does anyone depend on you financially? Do you have any significant debts? Do you own a business? Do you want to leave an inheritance behind when you pass away?

If you answered yes to any of those questions, you might need life insurance.

What Is Life Insurance?

The purpose of all life insurance is to help provide a secure financial future for your family after you’ve passed away.

Many people determine how much coverage is appropriate for them based on the needs approach. This would involve estimating how much money your family would need in order to help replace your lost income and make debt payments (i.e. credit card or mortgage) in your absence.

It could also include one-time expenses like your funeral costs, and other ongoing expenses your family might be responsible for after you’re gone.

How Does Life Insurance Work?

A life insurance policy is an agreement between you (the “policyholder”) and the insurance company (the “insurance provider”), that says that if a specific person passes away (the “insured”), while the monthly payments (the “premiums”) are paid-up, the insurer will make a lump sum payment (the “death benefit” also referred to as the “coverage amount”) to the person or persons of your choosing (the “beneficiary”).

How Much Does Life Insurance Cost?

That varies on a number of factors: the kind of life insurance you're looking for, your age, gender, health, whether you smoke, how risky your hobbies are and more. (For example, how do insurance companies handle marijuana use?)

In some cases, you'll need to undergo a health exam to receive a final rate, although some insurers may be able to fast-track your application without a health exam. Some kinds of insurance are guaranteed-issue, which means they don't take your personal health situation into account and you don't need an exam.

Once you’ve completed the health exam (if required) and the underwriters evaluate your results and determine your rating classification (essentially, how risky is it to insure you?), you'll receive your final, confirmed price.

If I Buy a Policy Today and Pass Away Tomorrow . . .

Then how much of the policy would be paid?

One hundred percent. So long as the event leading to your mortality is covered by your policy, and the premiums are paid. End of story.

There are a number of types of insurance that pay a death benefit. Here are a few:

Term Life Insurance

Term life insurance provides a death benefit if you die during a certain time period, or term. If you had a 20-year term policy, you'd be covered for that 20-year span. After that, you'd either need to buy another policy or let your coverage lapse.

Often, people choose term life insurance as an affordable way to help protect their loved ones during a specific, high-need time, like when they’re raising kids. After 20 years, for example, your kids might be out of the house and your need for life insurance might be lower.

Term life insurance is often medically underwritten and requires a physical exam. It also tends to get more expensive to purchase as you age.

As a heads up, Fabric offers a 20-year term life insurance policy. You can apply online in just five minutes, without ever speaking to an insurance agent.

Accidental Death Insurance

When you’re 25 to 44, the single greatest risk to your life is accidental death1. Accidental death insurance is built specifically for that.

Accidental death insurance tends to be affordable and, because the insurance provider doesn’t need to take your health into consideration, it can be purchased extremely quickly and without a medical exam. This type of insurance is more affordable, too, because it only covers death due to accidents, not illness.

Whole Life Insurance

Whole life insurance, also called permanent life insurance, offers coverage for your entire life. Its premiums include a mix of insurance and investment components, the latter of which builds accumulated cash value that can be borrowed against or withdrawn before you pass away.

Whole life insurance policies are more expensive and complex than term life insurance because they provide lifetime protection and cash accumulation. Certain fees and expenses will reduce the cash value. That can, in turn, affect and even reduce the benefit amounts.

Check out our full rundown on term and whole life insurance.

Note that you can convert your Fabric Premium term life insurance policy into a whole life policy, if you want.

Who Might Want Life Insurance?

The first reason, and the main purpose of life insurance, is the death benefit. It’s probably safe to say that we’ve all thought about what would happen to our families if the primary wage-earner were to unexpectedly pass away, whether that be us or our partner.

Purchasing life insurance shouldn’t just be about the lost income of the “breadwinner”; it’s also worth considering how much child care would cost if a non-earning spouse, who takes on the responsibility of staying home with the children, were to pass away.

We all want to know that even if we pass away, the people depending on us financially will be taken care of.

Another big reason to get a policy is because life insurance creates an immediate estate, so to speak.

Estate creation can be especially important for young families that are just getting started and don’t have much when it comes to assets that will be left to their loved ones.

With life insurance, though, your beneficiary or beneficiaries will end up with the money from your policy’s death benefit.

There are also reasons that single people might want to buy life insurance, too.

All this being said, the policy needs to remain active and in force and the cause of death needs to be covered by the specific policy in order for your beneficiary to receive the benefit.

Which Type of Policy Is Right for Me?

Experts often recommend a coverage amount that's five or more times your annual salary.

When you compare life insurance policies, spend some time thinking through the financial needs of your family and how they’ll be impacted if you or your spouse were to suddenly pass away.

A solid rule to live by is to read, and understand, all of the information that’s available to you on any type of insurance policy before buying it.

If you’re unsure where to start, here are some questions to help get the ball rolling:

  • How long should I have insurance coverage?

  • Would it make sense to have lifetime coverage?

  • Do I need the cash accumulation features of a whole life policy?

  • Am I willing to take a medical exam?

Then, down the road, when you're assessing a specific policy, there are a few questions you might ask. These include:

  • Are there any limitations and/or exclusions in this plan? If so, what are they?

  • What happens if I miss a payment?

  • How long is the coverage term, and what's the coverage amount?

  • Do I need to take a medical exam?

At the end of the day, you need the right kind of coverage for your life.

Are you ready to see how easy it can be?

Fabric Instant offers accidental death insurance that takes about 2 minutes from start to covered.

Get your pricing now.

1 CDC, National Vital Statistics Report, Volume 64, Number 2; February 16, 2016, Table 9.

This material is designed to provide general information on the subjects covered. It is not, however, intended to provide specific advice or to serve as the basis for any purchasing decisions.

Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.

Kaycie Tyll

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Fabric Instant is an Accidental Death Insurance Policy (Form VL-ADH1 with state variations where applicable) and Fabric Premium is a Term Life Insurance Policy (Form ICC16-VLT and CMP 0501 with state variations where applicable). Policies are issued by Vantis Life Insurance Company. (Vantis Life), Windsor, CT (all states except NY), and by Vantis Life Insurance Company of New York, Brewster, NY (NY only). Coverage may not be available in all states. Issuance of coverage for Fabric Premium is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.

Fabric Insurance Agency, LLC (FIA) is an insurance agency licensed to sell life, accident, and health insurance products. FIA will receive compensation from Vantis Life for such sales. The NAIC Company Code for Vantis Life is 68632. See the Terms of Use for additional information regarding FIA.‬‬