Did you know about 50 percent of Americans do not have life insurance?

Part of the problem is a lack of clarity: 31 percent of people who need it but aren’t covered say it’s because they don’t know what to get. But it doesn’t have to be complicated. In the simplest terms, life insurance is a contract between a policy holder and an insurer; in exchange for monthly or annual premiums, that insurer pays your designated beneficiaries a death benefit, which is a lump-sum payment, upon your passing. If you’re looking to sign up for a life insurance policy for the first time or update your existing one, these are some of the most common questions to ask.

Do you need life insurance?

For most people, the answer is yes. If you have loved ones who depend on you financially, then life insurance is very important. Stay-at-home parents should also consider coverage, as their contributions might need to be replaced by paid services if they pass away. If, on the other hand, you are single without any dependents and you have a decent amount of savings to cover any unexpected medical expenses and funeral expenses, life insurance may not be essential.

When should you get it?

Life insurance grows more expensive the older you get, so buying it earlier is often better to lock in a lower rate. Plus, health problems could arise as you get older, which could also drive up the cost of insurance or even potentially disqualify you. People typically buy life insurance when they have children, but you should consider it sooner if you have credit card debt or student loans so there will be money to cover end-of-life expenses.

What types of life insurance are there?

Generally speaking, there are two main types of life insurance: term and permanent insurance.

Term

This type of policy guarantees coverage for a specified amount of time, typically between ten and thirty years. You pay a monthly premium in exchange for what is called a death benefit, which is a set amount of money paid out to your beneficiaries if you pass away within the policy term. However, if you outlive the term, the policy expires and you will no longer be insured. At that point, you have the option of renewing the policy or converting it to a permanent one. Term policies do not offer any investment opportunities because they do not accumulate cash value, but they may provide a larger death benefit. They are also typically the least expensive type of life insurance.

Permanent

Both whole life and universal life are types of permanent life insurance policies, meaning they guarantee coverage for the lifetime of the insured. For this reason, they are generally more expensive. With whole life insurance, you pay a fixed monthly premium for the duration, while a universal life policy gives you the flexibility of adjusting this amount.

What factors determine your life insurance rate?

Age: The older you get, the more expensive the premium due to mortality calculations.

Gender: Due to lower life expectancy, men typically pay a higher premium.

Type of policy: Your rate will be dependent on whether you choose term, permanent, or some blend of the two.

Coverage amount: Typically, the higher the coverage, the higher the cost of the premiums.

Health: A medical exam is often required, which involves a check of your vitals. Your medical records may also be requested along with your family history.

Tobacco use: Smoking will negatively affect your life insurance rate due to the increased health risks.

Lifestyle: Some questions you may be asked about include your occupation, annual income, risky hobbies, driving record, and bankruptcy history.

Do you need a medical exam?

Some policies do not mandate a medical exam to accommodate the modern consumer. They are often faster and more convenient, though they are likely to come with higher premiums due to the risk assumed by the insurer.

What other benefits can life insurance provide?

In addition to a death benefit, permanent life insurance also has the ability to accrue cash value. Part of your premium goes toward building your policy’s cash value, which grows tax-deferred at a guaranteed rate. Just note that any unused cash value goes back to the insurance company once you pass away.

Final thoughts

For most people, life insurance is a smart decision to protect dependents who rely on you financially, and the earlier you buy it, the lower the rate will be. Some factors are within your control, but many are not, so keep that in mind when planning for premiums. An insurance agent can answer your questions and help you review all of the information before you sign anything. And always be prepared to adjust your insurance policy as your needs change.