What Is Basic Life Insurance and Who Should Buy It? (2024)

FAQs

What Is Basic Life Insurance and Who Should Buy It? ›

Basic life insurance is typically a form of term life insurance, offering coverage for a specified period, often ranging from 10 to 30 years. It provides a death benefit, a lump-sum payment to beneficiaries, if the insured passes away during the term. This coverage is usually limited and often employer-provided.

Also known as employer-sponsored life insurance or group life insurance, basic life insurance is a small policy for employees or members of an affiliate group like a credit union. In some cases, it's automatic, meaning you'll receive the benefits unless you decline the policy.

Buying life insurance protects your spouse and children from the potentially devastating financial losses that could result if something happened to you. It provides financial security, helps to pay off debts, helps to pay living expenses, and helps to pay any medical or final expenses.

Generally, you need life insurance if other people depend on your income or if you have debt that will carry on after your death. However, the older you get, the more expensive life insurance becomes.

If you have dependents who rely on your income, then you may require additional coverage to provide for their needs in the event of your death. Some experts recommend getting coverage worth five to 10 times your salary.

Basic life insurance is a type of group life insurance that is provided to employees at no or very low out-of-pocket cost. Insured individuals can expect that their beneficiaries will receive a limited and predetermined death benefit if the policyholder passes away during the coverage term.

Based on the value of your future earnings, a simple way to estimate this is to consider 30X your income between the ages of 18 and 40; 20X income for age 41-50; 15X income for age 51-60; and 10X income for age 61-65. After age 65, coverage is based on net worth instead of income.

Level Term Life Insurance is best suited for those in good health who have a fixed time period or need for protection, such as helping to put children through school or helping to pay off a mortgage.

The main benefit of adding life insurance to your financial plan is that if you pass away, your heirs receive a lump sum, tax-free payout from the policy. They can use this money to pay your final expenses and to replace your income. Life insurance can also benefit you while you're still alive.

Life insurance costs on average $26 per month for a 30-year-old buying a $500,000, 20-year term life insurance policy. A 30-year-old buying $500,000 of whole life insurance will pay on average $451 per month. Your rates will differ based on your age and health.

Who is most likely to buy insurance? ›

The intent to buy is even higher among Gen Z adults (44%) and millennials (50%). This year's study, conducted jointly by nonprofit industry trade associations LIMRA and Life Happens, shows younger generations are less likely to have coverage and more likely to live with a life insurance coverage gap.

High net-worth individuals. Those paying off debt. Those concerned about funeral costs. Those looking to provide an inheritance.

Life insurance may not be worth if you have no dependents, if you have a tight budget, or if you have other plans for providing for them after your death.

Cash value? The pros and cons of term and whole life insurance are clear: Term life insurance is simpler and more affordable but has an expiration date and doesn't include a cash value feature. Whole life insurance is more expensive and complex, but it provides lifelong coverage and builds cash value over time.

Term life insurance

It is sometimes called “pure life insurance” because, unlike whole life insurance, there's no cash value to the policy. It's designed solely to give your beneficiaries a payout if you die during the term. Most individual term policies have level premiums, so you pay the same amount every month.

Life insurance doesn't typically pay out in these circ*mstances: Murder: If your beneficiaries murder you or are closely tied to your murder, they won't receive the death benefit, per the slayer rule. Suicide: A payout won't apply if you commit suicide within the first two years of purchasing your policy.

Term life insurance. Whole life insurance (permanent) Universal life insurance (permanent)

Not every type of life insurance has a cash value component. For example, term life insurance does not have a cash value component. Whole life and universal life are forms of life insurance that have a cash value component.