Nerdwallet: Life insurance explained in (exactly) 250 words

What life insurance is: a policy that pays out if you die.

 

When you need it: if your death would cause financial hardship to someone, like a spouse.


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How it’s priced: based on life expectancy. Any factor reducing life expectancy, like heart disease, will likely mean a higher price.

Comparing prices: Even if you have medical conditions, compare life insurance quotes from several companies. Insurers are competing for your business.

When you apply: A life insurance medical exam is often required. Insurance companies typically also look at your medical records, use prescription-drug databases to see what medicines you take, pull your driving record, and access a database with your answers for previous life and health applications.

Easiest life insurance to understand: term life insurance. You choose only the policy amount and the length.

Cash value life insurance: policies that contain an account that can build up money over time. Eventually you can withdraw the money or take a loan against it. Policies with cash value include whole life, universal life and variable universal life. Term life insurance has no cash value.

Once you buy: Your rates can’t go up once you have a policy, even if you develop new health conditions.

Life insurance payout: called a death benefit. It will go to the person (or people) you designate as the beneficiary.

Note on minor children: They cannot receive life insurance money directly. If you’re buying life insurance to benefit children, you should set up a life insurance trust for them.

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This article was provided to The Associated Press by the personal finance website NerdWallet. Email NerdWallet insurance expert Amy Danise: adanise@nerdwallet.com. Twitter: @AmyDanise.

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Related Links:

NerdWallet: How and why to set up a life insurance trust for your children https://nerd.me/2iJ8eOq

Database of previous life and health insurance application answers: http://www.mib.com

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