In Triage Cancer's free Quick Guide to Life Insurance, you'll learn the definition, and about naming a beneficiary, buying life insurance, ways to get it, the two main types of policies, life insurance riders, loans and the sale of policies, finding lost life insurance policies, and more.
Life insurance is insurance that individuals can buy to provide a specific amount of money to a person (or persons) of their choosing, in the event of their death. A main purpose of life insurance is that you can pay during your lifetime to ensure that your loved ones are taken care of financially.
Life insurance is just one estate planning tool to consider as you plan your estate. For more information about estate planning, visit our Estate Planning Materials & Resources.
A life insurance “beneficiary” is the person(s) who will receive the proceeds from the life insurance policy. For example, if the life insurance policy is worth $50,000, then the beneficiary will receive $50,000. When you purchase a life insurance policy, you must name at least one person (the beneficiary) you wish to receive the proceeds of the policy.
It can also be useful to combine life insurance with your other assets in an estate plan. For example, you have two children and own a house and you want to provide for your children in the future, but you are concerned about leaving your house to both your children, because it would be difficult to share that asset and may require your children to sell the house. You could buy a life insurance policy and name one child as a beneficiary and then leave your house to your other child.
The first step in buying a life insurance policy is deciding how much coverage you need. One strategy is to buy enough coverage to cover at least one year of living expenses and to pay off your mortgage if you own your home. Some people choose to buy life insurance coverage to pay for their funeral expenses. Once you buy a life insurance policy, it is important to review your coverage once a year to make sure that it still meets your needs. For example, do you have enough coverage to pay for your current expenses. Or, if there were any changes to your family, such as the birth or adoption of a child or grandchild, you may want to make changes to your beneficiaries, which you can do at any time.
Life insurance companies go through a process called medical underwriting to determine what they will charge for a policy. Medical underwriting could include a written questionnaire, a verbal survey, medical exams, and a review of your medical records. Typically, the healthier an individual, the more affordable the policy. Life insurance companies are permitted to refuse to sell policies to people with pre-existing medical conditions. Each company can decide if, or when, they would be willing to insure someone who has been diagnosed with cancer.
Term life insurance: you pay a premium and if you die during the term of the policy (e.g., 1-30 years), your beneficiary will get paid. Typically, term insurance is the most affordable, but it does not build any cash value over time.
Permanent life insurance: a portion of your premiums is put into an account, known as the cash value, which grows at a fixed or variable interest rate. You can withdraw from, invest, or borrow against the case value. Some policies tie the growth to investment accounts, so your cash value could go up or down, depending on the performance of your investments. It can take several years to build up a cash value. Premiums for permanent life insurance are higher than for term life, because of your ability to build up savings and because you're buying coverage for a longer period. There are different types of permanent life insurance options, including whole, variable, universal, and variable universal.
To understand the full range of life insurance options, individuals should consider speaking with a financial planner or insurance agent.
Some insurance companies offer more benefits that can be added to their policies for an additional fee. These added benefits are called “riders.” Common riders that may be particularly useful for people coping with cancer, include:
Some riders are only available when you first purchase your policy, while other riders are offered after an individual has a policy for a period of time.
In addition to providing financial security for loved ones after an individual dies, life insurance may also be a source of income while an individual is still living. There are pros and cons to each of these options, but they may be an effective way to access a larger sum of money than some financial assistance programs can provide. However, each option may also have other financial and tax implications including impacting eligibility for government benefits. It can be helpful to talk with a financial advisor or an accountant before making these decisions. To find out if your insurance policy qualifies for a loan or a life settlement, contact your life insurance company or a life settlement company in your state.
Beneficiaries often do not know they are supposed to receive money from a life insurance policy and never pursue a claim. The National Association of Insurance Commissioners (NAIC) has an online tool called the Life Insurance Policy Locator. This free tool allows consumers to search for possible life insurance policy or annuity proceeds anywhere in the nation.
For more information on navigating finances and cancer, see our Financial Resources & Materials, and visit CancerFinances.org.
Last reviewed for updates: 01/2022
Disclaimer: This handout is intended to provide general information on the topics presented. It is provided with the understanding that Triage Cancer is not engaged in rendering any legal, medical, or professional services by its publication or distribution. Although this content was reviewed by a professional, it should not be used as a substitute for professional services. © Triage Cancer 2022
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