Life insurance is one of those things you cross off your to-do list as you take the journey towards becoming a responsible, independent adult. But how do you know you’re making the right life insurance decision? And how do you even go about buying life insurance, anyway?
Don’t sweat it—we’ll take you through the who, what, why, and how of life insurance, so you can get the information and the coverage you need… and then get on with your life.
Do I need life insurance?
Unlike car insurance for drivers—or in most cases, homeowners insurance for homeowners—you are not required to purchase life insurance just because… you’re alive. The decision to purchase a policy is entirely your own.
How does life insurance work? If you’re looking for a deep dive, check out our ultimate guide to life insurance. If you only need the TL;DR version, keep reading.
When you purchase a life insurance policy, you pay the life insurance company (your ‘insurer’) a fee (your ‘premium’). In exchange for this monthly premium, the insurance company offers some financial security for your loved ones. If you were to pass away, and the claim is accepted, a payout (called a ‘death benefit’) goes to your beneficiaries—the person, people, or organization of your choosing.
Your beneficiaries can use the payout however they see fit. Often, these funds are used to cover things like childcare expenses, mortgage payments, and funeral costs.
Ask yourself: Would someone you care about be put into financial hardship if you were to die unexpectedly?
Getting married, having a baby, or starting a business are all common reasons someone might be moved to take out a life insurance policy. If you’re still not sure if life insurance is right for you, you might want to chat with a financial advisor, life insurance agent, or a savvy person you trust.
What type of life insurance should I choose?
Once you’ve decided to purchase a policy, you’ll need to find the right type of coverage for you. After a quick search you might have noticed that there are literally dozens of different types of life insurance products on the market. The two most common types of coverage you’re likely to see advertised are term life insurance and whole life insurance.
Full disclosure: At Lemonade, we only offer term life policies. But we’re here to give you the lowdown on both types of policies. We have an article that will take you into much greater detail on the differences between term vs. whole life insurance, but we know that your time is valuable, so here are the basics:
Term life insurance
With term life insurance, you select a set number of years, or term, during which your coverage is active. Lemonade, for example, offers 10, 15, 20, 25, 30, 35, or 40 year terms. If you were to pass away during the set term, and the claim is approved, your beneficiaries would receive a lump sum payout.
You choose the amount of this payout—anywhere from $100,000 up to an unlimited maximum benefit in the case of Lemonade’s offering—when you purchase your policy. Obviously, more coverage will lead to a higher monthly premium.
Term life policies don’t build any additional cash value. In the likely event you are still alive at the end of your term, your coverage ends, and you’re welcome to apply for a new policy.
Say you’re 30, and you purchase a 20-year term life policy. Fast-forward two decades and you’re celebrating your 50th birthday, still very much alive—congrats!—after which your policy expires. Your insurer, having received your monthly premiums for the entire term, won’t have to pay out a death benefit.
Because of this, term life insurance premiums tend to be lower than in permanent life insurance policies, which last for as long as the policyholder lives, and basically guarantee some sort of payout (more on that below).
Whole life insurance
Whole life insurance policy is a type of permanent life insurance. Whole life policies tend to have much higher monthly premium payments than term policies—sometimes, up to fifteen times higher.
Why’s that? Well, the higher premiums are mostly because when you purchase whole life insurance, you’re covered for life, meaning that a death benefit payout is basically guaranteed (there are some exceptions, of course).
One selling point for whole life insurance is that, over time, a whole life insurance policy builds some additional cash value, which can become equity for policyholders to use—while they’re still alive.
Keep in mind that whole life coverage generally requires a number of hoops to jump through during the application process since it is a longer-term commitment.
How do I choose the right life insurance provider?
In order to find the best life insurance provider for your needs, it’s best to shop around and do some research before settling on a policy. Although it depends on the type of coverage you’re looking for and the individual application requirements set by each provider, nowadays it’s getting easier to apply with multiple insurance companies andcompare quotes so that you can find the right policy for your coverage needs and your budget.
FYI: Besides the policy, be sure to also check out the insurance company as a whole. Confirm that the insurer is financially stable and offers excellent customer service. Read product reviews from reputable sources like Consumer Affairs or The Penny Hoarder.
That said, if you’re looking for convenience and reliability—plus a policy that’s easy to understand—Lemonade’s term life offering might fit the bill.
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How much life insurance coverage do I need?
Like we mentioned before, the goal of your life insurance policy is to help ensure that your loved ones have financial protection if you weren’t around to provide for them anymore. So, what is the right amount of coverage for you?
Ask yourself what your family’s expenses are for an average year. What do you pay in rent, or towards a mortgage? Do you still have student loan debt? What’s your own current annual income? Are you a stay-at-home parent? How much would it cost to outsource those childcare and household obligations?
Now think of your available resources and assets, which could balance out some of those expenses. That includes any savings you currently have in the bank, as well as the value of things you might own outright (like your home, if you’re lucky). This will help you get the bigger picture of your family’s finances if you were to pass away.
According to a recent MIT study, a family of four (two working adults, two children), needs around $100,000 a year to get by. But of course, this exact amount will be different for everyone. If you’re a 31-year old mom buying a 10-year term life insurance policy, you’re basically posing a hypothetical question to yourself: “If I were to pass away at the age of 39 or 40, what amount of money would safely cover my family from that point into the future?”
Based on those personal calculations, you’ll want to make sure that your life plan’s death benefit is sufficient to provide for your loved ones. Just so you know, Lemonade’s term life offering provides coverage from $100,000 up to an unlimited maximum benefit.
How do I buy a life insurance policy?
Even in the 21st century, applying for and buying a life insurance policy from some insurers can still be a drag.
At Lemonade, we’ve tried to streamline the process to make it as seamless as possible. You’ll start the application on the Lemonade website or app, where you’ll answer a few basic questions about yourself and your health. From that point, we’ll transfer you to our partners, Legal & General, who will help you customize your policy and complete your application.
In some cases, you may be able to skip the medical exam and get a quote right away. In other cases, you may be required to answer a few additional questions that could take 2-10 days for an underwriter to review. And, depending on your circumstances, you might be asked to complete a medical exam that could mean waiting 10-30 days for a final decision about coverage.
If you’re approved with Lemonade, you’ll receive a quote and be redirected to Legal & General’s website to electronically sign your policy and initiate your first payment. Once you’re all set with coverage, you can get on with your life, knowing you and your loved ones are covered.
A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states.
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