Learn how life insurance works and how to find the right policy
There are many reasons to get life insurance. Perhaps you have a young family. Maybe you just opened a small business. Or you could be supporting an adult child or parent. For most of us, those reasons will change over time as our families grow.
If have questions about life insurance and want to know if it’s right for you, you’ve come to the right place. In this article, we’ll answer questions about how to get life insurance and share how AAA Washington can help.
Let’s jump into commonly asked questions about life insurance.
What does life insurance do?
Life insurance provides a tax-free cash payment to your beneficiaries when you pass away. The person or people you name in your policy are called beneficiaries.
Life insurance can protect the people you care about when they can no longer depend on your income and support.
What’s the best age to get life insurance?
There’s no perfect age to get life insurance, but there are many reasons to consider it at different stages of life. People usually start to think about life insurance because of a major life event: they get married, have kids, buy a home, become responsible for the care of a family member, or open a business.
If your dependents – the people who rely on your income – will not be able to manage financially if you pass away, then it’s the right time to think about getting life insurance.
For example, if you’re married and one of you is the primary caregiver for kids at home while the other works, you could both consider life insurance. Should one of you pass away, the other will have unexpected financial needs. For one of you, this could be hiring a nanny and paying for daycare. For the other, it could be coping with the sudden loss of income and finding enough cash to pay the mortgage. Life insurance can make going back to work an option versus a necessity.
What are the 3 main types of life insurance?
There are several different types of life insurance:
- Permanent life insurance covers you until your death. It pays a pre-determined amount to your beneficiaries. It’s also called permanent life insurance. Some permanent life insurance policies develop cash values while one is still alive.
- Term life insurance is for a pre-determined number of years only. The number of years is called the term. When the term expires, the policy also expires. Term life is only valid for the number of years specified in the policy. Sometimes, term life is called temporary life insurance. Term life insurance usually has a conversion clause, where you can take some or all the coverage and turn it into a permanent life insurance plan.
- Employer life insurance is tied to a job. Your employer may include it in your employee benefits as a perk. It is valid only while you are employed and goes away when you leave your job.
The difference between term life and whole life insurance is complicated. A AAA Washington agent can help you choose the best type for you and your family.
How much does life insurance cost?
The cost of life insurance varies from person to person. It also depends on the amount of the benefit—the amount paid when you pass away.
There are several things that impact how much you could pay for life insurance. The two biggest factors are your age and sex. Younger people usually pay less for life insurance because they’re not as likely to have serious health problems. Men may also pay more for life insurance due to lifestyle factors.
However, it’s important to remember that no two situations are the same. You may have lower premiums than you think.
In Washington, the average annual life insurance premium is between $300 and $3,000. For example, a 40-year-old with an annual salary of $120,000 can buy a life insurance policy of $1,000,000 for about $45 per month if they are healthy and don’t have many risk factors.
What are life insurance riders?
A rider is an addition to an existing insurance policy. A life insurance rider adds specific coverage to your policy.
Here are some of the insurance riders that you can add to a life insurance policy. Depending on the type of coverage, some of these riders may already be included in a policy.
- Accidental death benefit: Provides an additional amount of money if the insured person dies as a result of an accident.
- Waiver of premium: This rider specifies that, if you become disabled and are unable to pay, the insurance company will waive your premiums. You won’t have to pay your premiums to keep your policy.
- Accelerated death benefit: With this rider, you can withdraw a specified amount of money from the policy if you’re diagnosed with a terminal illness and need to pay for long-term care. Making a withdrawal of this kind means that your life insurance payout will go down.
- Spousal rider: This is like combining two policies into one. A spousal rider may only be available on term life policies. (The policy covers both you and your spouse under the same policy rather than each of you individually carrying policies that name the spouse as the primary beneficiary.)
- Return of premium: At the end of the term, if nothing happens, 100% of the premiums paid in get refunded tax-free to supplement one’s retirement.
Why do people pay different amounts for life insurance?
No two people are the same. Neither are any two life insurance policies. Because each life insurance policy is custom made for the individual, you won’t find two identical policies. But, there are some factors that influence how much people pay for life insurance.
In addition to age and sex, these factors could impact your life insurance cost:
- Current health (including chronic health conditions or illnesses)
- Tobacco use
- Family health history
- Job, including high-risk jobs such as forestry or agriculture
How can I get life insurance?
Want to learn how to get life insurance? The first step is to connect with a AAA Washington agent to decide what type of life insurance is best for you. Your agent can advise you on the best type of policy and help you to find one that’s right for you.
What happens if I miss a payment?
Most companies have a 30-day grace period. This means that you could send a payment up to 30 days after the due date and not lose your policy. But if you think there’s a chance you will miss a payment, be sure to contact your insurance agent before that happens.
If you don’t pay your premium during the grace period, your policy will lapse. So, it’s a good idea to set up automatic payments to make sure you don’t miss a payment and reach out to your insurance agent if you’ve missed one.
Will my family pay taxes on life insurance?
In Washington and Idaho, life insurance benefits are not taxable. Your family will not pay income taxes on your life insurance money. It’s also important to note that beneficiaries don’t have to report the life insurance payout on their taxes.
However, there are some exceptions, especially for high-net-worth individuals. If you have any questions, be sure to ask your insurance agent.
Can I customize a life insurance policy?
Yes, you can customize a life insurance policy to meet your needs. You can work with an agent to get the right policy for your budget and needs.
Does AAA Washington sell life insurance?
The answer is yes. AAA Washington sells permanent and term life insurance. Your insurance agent can help you get life insurance. (Plus, AAA Washington members save up to 10% on term life.)
What’s the first step to get life insurance?
The first thing to do is connect with a life insurance agent at AAA Washington. They will explain how life insurance works, offer you some options and help to get life insurance quotes. When it’s the right time for you to buy life insurance, your insurance agent will help you get the best policy.
— Written by: AAA Washington staff
— Top photo: AdobeStock