So you think you may need life insurance, or maybe you currently own it but think you need more. Chances are, if someone relies on you financially, you want to make sure you're adequately covered. But how much do you need, and what kind should you buy? Finding an agent who can talk with you about your needs and budget is an important step you should take soon. But in the meantime, here are the answers to a few commonly asked questions.

Who needs life insurance?

If someone depends on you financially, you probably need life insurance. If you’re a breadwinner, life insurance can provide critical financial support to your loved ones if you die prematurely. Life insurance can also help you establish a fund you can access for planned life events like college or retirement, or for emergencies and opportunities.

Later in life, it can help you transfer your wealth to the next generation.

Read more about how life insurance can meet your needs throughout your changing lifetime.

How do I know how much I need?

You can start by identifying what you want your life insurance to do. For example, if you're a breadwinner, you probably want your life insurance to replace your income for a certain number of years in case something happens to you. Most experts say you should consider life insurance coverage worth five years of your current income.

Life insurance can also help ensure funds are there for college tuition, final expenses and to cover outstanding debt.

Everyone's needs are different, so use our needs calculator to get started, and then find an agent near you who can help with a full needs analysis.

What are the different types of life insurance?

  Term

Term insurance provides coverage for a specific period of time, such as 10, 20 or 30 years.  If you die during that period, the beneficiary you name on your policy receives the death benefit amount. When the term ends, so does your protection, unless you select a term policy that gives you the option of renewing your coverage. 

Term policies don't build cash value as most permanent life insurance products do. Because of this fact, when you buy a term policy you're paying for pure protection. So most of the time, term insurance is the least expensive kind of coverage you can buy.

One type of term insurance commonly known as 'return of premium term' allows you to get back all or a portion of the premiums you pay into the policy at the end of the term.

Permanent

Permanent policies provide protection for your entire life by paying a sum to your beneficiary upon your death.¹ Most permanent policies build cash value over time, and you can access this cash value for emergencies, opportunities or planned life events such as a college education or retirement.

There are different types of permanent policies. Whole life products usually offer level premiums and strong, traditional guarantees, such as a schedule of guaranteed values. Universal life products normally offer flexible features, such as the ability to change your coverage amount or your payment schedule after you purchase the policy. A variation on universal life, variable universal life allows you to invest your policy's cash values in fixed accounts and sub-accounts that have the potential to earn market returns. Finally, single payment whole life is a type of insurance you buy with one payment. Because the death benefit is higher than the single payment, this kind of insurance is often a good fit for people looking to transfer wealth.

¹ Many permanent policies endow at age 121.
² Some term policies offer the option to continue coverage at the end of the level term period. In most cases, premiums will increase annually as you age

What kind should I buy?

That depends on your needs and your budget. Generally speaking, term life insurance is a good fit for people with temporary needs, such as protecting a mortgage or covering costs associated with raising children, such as daily childcare. Initially, it's usually the least expensive coverage you can buy.

Many people have permanent needs, such as paying for final expenses and replacing income should a breadwinner die prematurely.  Permanent insurance lasts for the lifetime of the insured.

Some companies offer term policies that can be 'converted' to permanent coverage without taking a medical exam. A term policy with a conversion privilege is a great option to explore with your sales representative because if you're purchasing for the first time and can't afford the higher premiums associated with a permanent policy, you can start out with term insurance and convert it to permanent later on.

You may also be able to purchase a policy that's a combination of term and permanent coverage, allowing you to tailor your coverage to meet your needs and budget. 

How much does it cost?

For starters, the cost for your life insurance will depend on the type of policy you choose and the amount of coverage you select. Your gender, your age and your health also determine how much you will pay for your individual policy. Whether you use tobacco products also plays a part.

Generally speaking, term life insurance is usually the least expensive type of coverage you can buy.

Many policies offer the option to add 'riders,' which provide extra coverage or coverage in special circumstances, such as when someone becomes disabled. Adding riders will also affect the cost of your coverage.

Because the price of your policy will reflect your own unique situation, it's best to talk to an agent who can determine what level of coverage fits your needs. 

What if I already own life insurance at work?

Many companies offer group life insurance coverage as a benefit. This type of coverage is often purchased as a multiple of your annual salary. Group life can provide valuable protection, but keep in mind that in many cases you can't take the same coverage with you if you change employers. In cases where you can keep your coverage, you may have to pay substantially more for it.

With an individually-owned policy, your coverage belongs to you as long as you pay the required premiums. It doesn't depend on your employment status. And individually-owned policies often offer more features and benefits than standard group coverage. 

What if my needs change?

Life moves quickly, and often coverage that was right at the time you purchased it may not be the best fit down the road.  Look for a company that offers the option to 'convert' term coverage to permanent coverage when it's a better fit for your needs and budget.  You can also consider a universal life policy that may allow you to increase or decrease your coverage after you purchase the policy, as long as you follow the guidelines in your contract.

The best way to make sure your coverage is keeping up with your changing needs is by reviewing your coverage with your agent at least once a year. 

Should I have life insurance on my child?

One of the primary reasons to buy life insurance is to replace the income of a breadwinner in the case of premature death. Since children don't usually have much current income, buying life insurance for this typical reason makes little sense. However, there are other advantages to buying life insurance for children.
Buying a permanent policy for a child offers lasting protection at a relatively low cost. Plus, many policies offer a guaranteed insurability feature that gives the child the opportunity to buy more coverage at a later date, regardless of changes in health.

Is there a way I can guarantee income for retirement?

A single payment deferred annuity contract is one vehicle that can help you establish a stream of retirement income without the risk of market fluctuations. With just one convenient lump-sum payment, it's a smart choice that can help you build your retirement income with the power of tax deferral to establish an income you can never outlive.

Find an agent near you who can answer your annuity questions.

Are there tax advantages to life insurance?

Under current tax law, the death benefit from a life insurance policy passes to beneficiaries income tax-free. Because of this feature, life insurance offers advantages over other financial vehicles that are taxed when they're passed to loved ones upon the owner's death.

Another advantage is that with a permanent policy, the build-up in cash value is income tax-deferred, under current tax law. ¹

Finally, policy owners don't have to pay income tax on policy loans.  However, if there's a death claim while a loan is outstanding, the amount of the loan and loan interest will be deducted from the death benefit.^1
1Does not apply to Modified Endowment Contracts.  

What should I consider when choosing a life insurance company?

Before you decide to purchase a policy, check into the company's financial condition. If you're working with an agent, ask for that information, or request it from your state's insurance department.
A number of independent rating services rank the financial strength of insurance companies. Examples of these rating companies include AM Best, Standard & Poor's, Moody's and Fitch. You can research a company's rating online or in large public libraries, or by contacting one of the rating companies directly.

You should also ask whether the company is a member of the Insurance Marketplace Standards Association (IMSA). IMSA-qualified companies commit to maintaining high ethical standards and to being fair, honest and open in the way they advertise, sell and service their products. 

Where do I go from here?

A Liberty Mutual representative has the tools and the skills to analyze your needs and suggest solutions that work for you. Find an agent near you and get started today.

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