Life insurance basics
What is life insurance?
Life insurance is an important part of your financial wellness, regardless of your family status.
Learn the basics: What is life insurance?
Put simply, life insurance is a contract between the purchaser (owner) and a life insurance company. In exchange for the premium payments, the life insurance company will pay a set amount of cash when the person who is insured dies. The owner names a beneficiary of the life insurance policy, and that beneficiary receives the death benefit (cash). One of the main advantages of a life insurance policy is the fact that the beneficiary receives that cash income tax-free.
There are two different types of life insurance – term life insurance and permanent life insurance.
Term life insurance
Term life insurance is the most basic life insurance policy you can purchase. You pay a set premium for a specified term duration, and we guarantee a set death benefit during the specified term duration.* You can choose a term duration of 10, 15, 20, or 30 years. At the end of that term, you can continue paying premiums but they generally will increase each year, you can apply for a new policy or exchange this policy for a permanent whole life policy (as permitted by the conversion benefit that is included in your term policy).
Permanent life insurance
Permanent life insurance provides a death benefit for as long as you live and it’s typically more expensive than a term life insurance policy. Permanent life insurance also offers potential for cash growth, via what is called a cash value amount. There are four types of permanent life insurance policies: whole life, universal life, indexed universal life, and variable universal life. How the cash value grows differs for each type of permanent life insurance.
-
Whole Life
-
Universal Life
-
Indexed Universal Life
-
Variable Universal Life
- Provides guaranteed cash value amount as long as premiums are made on time
- Cash value amount is shown in the policy contract and does not deviate from it
- Provides cash value growth based on premiums paid and interest earned
- The interest earned is based on the interest rate that can change periodically and is set by the life insurance company
- Provides cash value growth based on premiums paid and interest earned from an indexed account
- The interest earned is based on the interest rate that will change based on the indexed account the premium is allocated to and parameters of the indexed account (which are set by the life insurance company)
- The indexed account is tied to the performance of an equity index (such as the S&P 500 index or the Dow Jones Index)
- Provides cash value growth based on premiums paid and interest earned from a variable account
- The interest earned is based on the interest rate that will change based on the performance of investment subaccounts (such as mutual funds) the premium is allocated to in the variable account
- Premium allocated to the variable account is directly invested in the investment options
Term or permanent life insurance?
Term life insurance
- Provides life insurance coverage for a select period of time
- Typically offers a death benefit with no cash value (we offer a unique Term product with cash value)
- Often one of the most affordable types of life insurance
- Provides a conversion option to exchange to permanent life insurance in the future
Permanent life insurance
- Provides life insurance coverage for as long as the insured lives
- Offers life insurance protection and potential for tax-advantaged cash value growth
- Allows for cash value access through loans and withdrawals for emergency or supplemental retirement needs
- Typically more expensive than term life insurance
Life Insurance resources
Life insurance FAQs
-
What does life insurance provide?Life insurance provides a death benefit if the insured passes away while the policy is in effect. Life insurance death benefits are typically paid out as an income tax-free lump sum to the beneficiary.
-
Who is a beneficiary?The beneficiary is the person(s) named by the owner of a life insurance policy to receive the death benefit when an insured passes away.
-
Who do I name as my beneficiary?Usually, the beneficiary is the person who depends on your financial support. That could include your spouse, children, or other family members.
-
How often should I review my beneficiary designation?You should review who you named as beneficiary every two to three years. Life happens, and needs and circumstances change. Therefore it is important to review your beneficiary designations periodically.
-
Why should I consider life insurance?Life insurance is an important part of your financial wellness, even if you don’t have dependents. Life insurance can do more than provide income replacement for your dependents – it can also be used to help build tax-advantaged family assets, help assure the continuity of your business if you pass away, or even pay for final expenses.
-
When do I need life insurance?Major life events affect your insurance needs. You should consider purchasing a life insurance policy at certain times, such as, when you get married, when you purchase a home, when you have children, or when you’re starting a business.
-
How much life insurance do I need?It depends on where you are in your life and who depends on you financially. When you're starting a family, you probably want to have enough to replace your income, so your spouse or partner and children have the support they need. Later in life, when your kids are grown and your house is paid for, you may want to reassess the amount of life insurance you have and focus on final expenses, outstanding debt, and the legacy you would like to leave your loved ones. Find out more about how to estimate your life insurance need, or speak with one of our financial professionals for a more personalized analysis of your needs.
-
What is the process of purchasing life insurance?The best first step is to speak with a financial professional so they can help provide a recommendation for which product best suits your life insurance needs and to answer any questions you may have. The financial professional will help calculate how much life insurance coverage you need and will provide quotes. You would then fill out an application and typically complete a medical exam. The insurance company will then review your application and provide an acceptance or decline decision.
*The guarantees described above are provided by Horace Mann Life Insurance Company and are based on the financial stability of the company and the terms of your life insurance contract. Refer to your life insurance contract for full details.
Horace Mann Life Insurance Company underwrites Horace Mann life insurance products. The information provided here is for general informational purposes only, and should not be considered a recommendation or investment, tax or legal advice.