See more from Wealth

Advertiser Disclosure

How to Decipher Online Insurance Quotes

Spread the love
How to Decipher Online Insurance Quotes

My first life insurance policy was small. As a group policy offered through my job, the coverage only offered the equivalent to 1 year of earnings. When they coined the phrase “humble beginnings”, they were referring to me. My photo appeared next to the definition of poverty in the dictionary. A year of earnings didn’t add up to very much back then.

Nobody told me that I might need more life insurance coverage. Luckily, you can learn from what I’ve learned (often the hard way). Purchasing a separate policy that you control is an important financial step, and many times you can save on premium costs by buying a policy sooner rather than later.

According to Policygenius, a leading online life insurance marketplace, only about half of all adults have life insurance. That figure has fallen from over 60% of all adults insured in 2011. As a society, we seem to be going in the wrong direction on this metric, leaving many families less prepared than they should be.

Key parts of a life insurance quote

One of the most common reasons people put off buying life insurance is that they expect a complicated buying experience. Once upon a time, that was true. However, life insurance shopping is now easier than ever, and understanding life insurance quotes isn’t as hard as you might think.

The most common types of policies are easy to decipher if you understand a few key concepts.

Key parts of a life insurance quote

Each life insurance company might use their own format for life insurance quotes, meaning that quotes can look slightly different if you’re shopping around, but often refer to the same elements of your coverage. 

Some providers might even use their own vocabulary to describe certain parts of your coverage. That’s one of the reasons we like Policygenius so much. Policygenius offers instant quotes in an easy-to-understand format.

But life insurance quotes all contain the same basic information and life insurance coverage concepts are pretty easy to understand, especially if you’re buying a simpler policy like a term life policy (the most common kind). 

First, it’s important to know that a quote is just a summary. Policy details will be explained fully in the policy itself. The quote is a starting point, often followed by a life insurance illustration, which is a set of projections that shows how your policy’s coverage might work overtime.

Lastly, your policy itself provides the full details of your coverage, including how much the policy pays in a claim and which conditions trigger a payable claim.

Life insurance terms to know

Everything is easier to understand once you get the basic lingo down. Here are some key terms to know that can help you decipher your life insurance quote.

Life insurance terms to know

Beneficiary: The beneficiary is the person who receives the payout from a life insurance policy if the person insured by the policy dies during the coverage period. You must choose a beneficiary when you purchase your policy. You can also choose a secondary beneficiary, or multiple beneficiaries, with each beneficiary receiving a percentage of the policy payout. A beneficiary can be one person, two or more persons, a trust, an estate, or even a charity. 

Death benefit: Also called a coverage amount or a face amount (for some policy types), a death benefit refers to how much the policy pays to your beneficiary in a covered claim. In most cases, the coverage amount and death benefit are the same. However, with whole life or some other policy types, these amounts might be different at the time of a claim. For standard term insurance policies (the most common type), the death benefit doesn’t change.

Owner: The owner of the policy might be you, or it might be someone else. For example, a spouse or parent might be an owner of a life insurance policy for the other spouse or for children. Business partners can also be owners of a life insurance policy in which you are the insured.

Insured: The insured is the person whose life the policy covers. This is probably you, but as mentioned when discussing owners, can also be someone else. When the insured dies, the policy pays the death benefit to the beneficiary.

Term: They say nothing lasts forever, and that’s often true of insurance policies. The term refers to how long the life policy is in effect with guaranteed rates. Some policies are designed to provide lifetime coverage, while others — called term policies — guarantee rates for a fixed term, such as 10 years, 20 years, or 30 years.

Maturity date: The maturity date for a life insurance policy refers to a date when the policy coverage changes. For example, with a term policy, the end of the policy term is the policy’s maturity date. A 20-year term life policy matures in 20 years. After the policy matures, your guaranteed premium may change.

For a whole life policy, the policy usually matures when you reach age 100, at which time the death benefit is paid to you. Of course, if you die before the maturity date, the death benefit is paid to your beneficiary.

Riders: A rider acts like an option or an add-on for your insurance policy. For life insurance policy types, the most common riders are for living benefits for those with critical illnesses or an option to add a spouse to your policy. 

Premium: The premium for your policy refers to the cost of your insurance. In most cases, premiums can be paid monthly, helping keep your coverage more affordable.

Which rating factors affect a life insurance quote?

Insurance costs vary based on broad factors as well as individual factors. This means insurers are looking at wide trends, but also looking at your data, specifically, when they set a premium.

Your premiums are driven by your coverage amount and by the coverage term, with higher coverage amounts in longer coverage terms driving the cost of coverage higher. 

However, your premiums also reflect your individual risk. Insurers look at your health history as well as family health history, lifestyle, occupation, and even your hobbies. For example, if you’re a skydiver or a spelunker, expect to pay higher rates. You might even find that some insurers won’t offer you a policy if you engage in some riskier activities.

In many cases, life insurance rates revolve around life choices, including hobbies or health habits, but your rates also consider health factors over which you may have no control, like diabetes, high blood pressure, or a family history of heart disease.

Here are some primary factors life insurance rating factors to consider:

Age: Younger life insurance applicants can expect lower rates when compared to older applicants, assuming all other rating factors are equal.

Gender: According to the CDC, women enjoy a slightly longer life expectancy than men, on average. For many types of policies, men can expect to pay a bit more for coverage.

Current health and health history: Most life policies require a medical exam, which gives the insurer a better understanding of your current health and helps the insurer set an accurate rate for your coverage.

Your health history also comes into play. For example, someone with a history of high blood pressure may encounter future health risks due to high blood pressure.

Family health history: If you have a history of heart disease, cancer, diabetes, or other health concerns in your family, your life insurance rates may be affected based on hereditary risk.

Tobacco or nicotine use: Smokers, including those who use electronic cigarettes, may pay higher rates with some life insurance providers.

Drug or alcohol use: With recreational use of marijuana now legal in many states, marijuana usage doesn’t carry the same stigma it once did. However, be aware that drug usage or heavy alcohol usage can affect your insurance rates.

Hobbies: Riskier hobbies can lead to higher rates. For example, if all other rating factors are equal, someone who spends their Sundays hiking paved trails to stay fit may pay less than a skydiver who jumps out of airplanes.

Which rating factors affect a life insurance quote?

Occupation: Some jobs bring more risk than others. Roofers, truck drivers, construction workers, and law enforcement workers may pay more for coverage than someone who works in an office, for example.

How much life insurance coverage do I need?

For most households, life insurance is income replacement. In other words, a life policy provides for dependents or loved ones if we die earlier than expected. This means you should consider a coverage amount high enough to cover your ongoing financial obligations.

Financial commitments to consider:

Mortgage: In most households, the family home is the largest single purchase we ever make — and also represents the largest debt we take on. Consider providing enough money as a death benefit to pay off your home or enough that your family can continue making mortgage payments.

Household debt: Auto loans, credit cards, and other types of debt might add up to more than you think. Consider these debt obligations when choosing your life insurance coverage amount.

Private student loan debt: A student loan can become a burden for parents or spouses if you die unexpectedly leaving a balance. Family members can discharge government student loans by submitting proof of death, but private student loans can become a  financial challenge for surviving family members. 

Child care: Every parent knows kids are expensive. You’ll need to provide for the basics, such as food and clothing. But it’s also important to consider providing for some basic extras, such as music lessons or karate lessons. Kids need to be kids, after all.

College costs: your life insurance policy can also provide for college or educational costs for your children. Consider including the cost of schooling or trade school when choosing a coverage amount for your life policy.

Ongoing living expenses: Bills, groceries, internet service, and cell phones are all ongoing expenses. You may need to include the cost of daily living for your family in your coverage total, at least for a certain amount of time. 

Final expenses: Funeral expenses often cost up to $10,000 or more. Additionally, we often leave behind medical expenses, such as hospitalization costs. Be sure to include a base amount of $10,000 to $20,000 in coverage to provide for final expenses.

Adjust for other coverage: If you have other coverage through another policy, you may not need to purchase as much coverage with a new policy. For example, if you decide you need $400,000 in coverage but you already have a policy for $100,000, your insurance needs are only $300,000.

The experienced agents at Policygenius can help you identify coverage priorities so you can choose the right coverage amount. The right coverage amount ensures your loved ones don’t face a financial hardship at an already difficult time.

Primary types of life insurance

While term life insurance remains the most common type of life insurance policy, other types of policies might also be a fit for some households. Here are some primary policy types available.

Term life insurance: A standard term policy offers guaranteed level premiums for a certain period of time, called a term. Level premiums means your cost of insurance won’t change, at least not during the guaranteed term.

Term policies have lower premiums than other policy types because the policy targets a limited time period, with the most common policy term being 20 years.

Whole life insurance: Whole life policies are a type of permanent policy. Rather than target coverage for a limited period, a whole life policy provides lifetime coverage.

Whole life policies also offer a cash value component which may allow you to borrow against the policy, use the cash value to pay premiums, or even sell your policy.

Final expense insurance: Available as a simpler policy for people 50 years or older, a final expense policy does what it says on the tin. This policy targets final expenses rather than income replacement. Expect coverage limits ranging from $10,000 up to $50,000.

Universal life and variable life: Universal life policy and variants offer an investment component that can help reduce the cost of coverage. These are permanent life policies, built using an annually renewable term life policy as the life insurance component.

While possibly more affordable than a whole life policy because the investment element can pay for part of the policy, universal life policies and variants can introduce risk to your life coverage strategy — again because of the investment element.

For many families, a term life policy may offer the best solution because the policy is designed with affordability in mind and allows you to target specific time periods that might coincide with a mortgage or the time until your kids are grown and on their own.

For other households, a whole life policy may be a better solution.

The experts at Policygenius can walk you through your options so you can choose the type of policy that’s best for you and your family. In just a few minutes, you can compare online quotes from leading providers. Getting the life coverage you need has never been easier.

Finding the best life insurance quotes

For many households, life insurance is best viewed as income replacement. You can use your policy to plan for debts or for ongoing financial obligations like the cost of raising children or everyday living expenses.

Life insurance is no fun to think about, but buying the coverage you need is easier now and once you understand a few key terms, life insurance lingo is easier to understand as well. If you get stuck along the way, Policygenius offers helpful tips and you can even reach out by phone. 

The right policy brings peace of mind that your loved ones will have what they need if the unexpected happens. But it’s important to get covered sooner rather than later. Age is among the most important rating factors, so with each passing birthday it can become more costly to purchase coverage.

And if you’re like me, you might forget if you put off getting a quote.

Compare life insurance quotes today with Policygenius.

Contributor’s opinions are their own. Always do your own due diligence before investing.

Keep Reading:

Written by Eric Huffman

Eric is a personal finance and insurance writer licensed in property, casualty, and life insurance lines. He has worked directly with clients, helping them find the best coverage to protect their business or family.

More From Insurance