Life insurance is a tax-free payout that goes to your beneficiaries upon your death. Once they receive payment, many people use it to cover funeral costs, debts, and replace the deceased provider's income. Like health and auto plans, you pay a monthly premium based on different options: Term, Whole, and Universal.
A 2025 Western & Southern Financial Group report states that 49% of Americans don't have life insurance. Those who may be putting it off until later may have to deal with more expensive policies as they age. A lack of coverage can leave loved ones vulnerable to financial ruin or the guilt of not burying the deceased in the way they wish.
By understanding the complexities of life insurance coverage from experts, you can avoid resorting to GoFundMe for burials. In this article, we'll explore what your policy really covers so you can understand how to protect your family after you've passed on.
Why Do I Need Life Insurance?
Simply put, funerals are expensive if one has to pay out of pocket. According to the National Funeral Directors Association, the median cost of a funeral with a casket was $8,300 in 2023, with cremation averaging about $6,280. Without proper planning, some families may have to go into debt or resort to Crowdsourcing to give the deceased the end-of-life services preferred.
At least with life insurance, families can receive immediate funds. It matters because funeral homes usually want payment immediately.
Burial expenses can include:
Casket
Headstone
Burial costs
Hearse
Funeral facility use
Memorial service
Vault
If you have any dependents like children, elderly parents, or a spouse, a life insurance policy can give them the security needed to carry on after your death. It can help them pay off a significant amount of debt or property that carries a mortgage. Therefore, life insurance can permit loved ones to remain in the same home and not be forced to sell it.
Do you have kids young enough for college? An insurance payout can fund education and reduce reliance on uncertain student loans. Don't forget this benefit is tax-free, so your loved ones will receive all of it!
When Should I Apply for Life Insurance?
You can get insurance when you're older, but it's best to apply while you still have youth and good health. Doing so will come with lower premium rates.
Plus, it's a good idea to get a new policy or update an existing one if you have financial responsibility for others.
Therefore, if you:
Got married
Have children
Bought a home
Have a large debt
Life insurance is an essential addition to responsible estate planning.
Types of Life Insurance
Insurees can choose between temporary and permanent policies. The three main categories are Term, Whole, and Universal.
Term
This coverage lasts for specific lengths of 10, 20, or 30 years. If the insurer is alive once the term period ends, they can renew on an annual basis at a now higher rate due to age. However, they can also convert it to a permanent policy.
The highlight is that it's the cheapest option while still providing potentially high coverage. Remember, failure to renew or convert this policy once the term ends means you no longer have coverage.
Whole
This type of permanent coverage has fixed premiums that cover your entire life as long as you make payments. It has a cash value that grows with interest, which you can borrow against.
Universal
With Universal coverage, you have a permanent policy that's more flexible than the Whole option. It also has a cash value element, and you can adjust premiums. You can also adjust the death benefit.
Can My Policy Become Void?
Unfortunately, you can void your policy with lifestyle behaviors. The type of death the policy owner had also affects whether beneficiaries see a dime.
Reasons for a void policy include:
Expiration
Lapse (not paying the premium)
Lying on the application
Outdated application information
Death during the waiting period
High-risk hobbies
Suicide clause
Death from criminal activity
How to Find the Best Policy?
When deciding on a life insurance plan, the following steps can help. Don't restrict yourself in any way.
Determine coverage need: Calculate how many years of your income your family will need to continue their lifestyle. Consider expenses such as education, mortgages, debt payments, vehicles, and your end-of-life care and burial.
Select Policy Type: Do you want temporary and cheaper Term or lifelong but more expensive Permanent options? If you think you'll need to access cash during your lifetime, the permanent options are the way to go.
Compare companies: Once you narrow down a few options, always get a life insurance quote.
Frequently Asked Questions About Life Insurance
How Much Does a $100,000 Life Insurance Policy Cost Per Month?
There are several variables that affect your insurance rate, such as health, gender, age, policy type, and term length. This insurance gets more expensive with age and lifestyle choices such as smoking. As a result, the premium for this coverage may range from $10 for a healthy 30-year-old with Term life insurance to $150 for a middle-aged person on a Whole Life plan.
What Happens After 20 Years of Paying for Whole Life Insurance?
You no longer pay monthly premiums, but you continue to keep the benefit. The policy is now paid and has cash value growth that continues to grow with interest. You can even borrow against it. That's why this plan is more expensive than Term Life Insurance.
Can You Cash Out Life Insurance Before Death?
Yes, you can cash out, depending on the insurance policy type you have. With a Whole or Universal Life policy, you can withdraw accumulated cash value. However, understand that doing so will reduce the death benefit.
Protect Your Loved Ones With Your Insurance Knowledge
A solid life insurance policy provides financial protection in the event of your death. As long as you're honest on your application and avoid certain high-risk activities like skydiving, a tax-free payout will cover your burial cost while leaving additional money to pay debt and maintain your family's lifestyle.
Consider Term life insurance, which may last 10 or 30 years, or permanent Whole or Universal life plans. Whatever option you pick, enjoy peace of mind knowing that you're taking care of loved ones by ensuring they won't stress over money later.
Did this article about life insurance help you understand it better? Review our website for more helpful lifestyle coverage.
This article was prepared by an independent contributor and helps us continue to deliver quality news and information.