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Benefits 101: Life Insurance Basics

Julianne Bartlett
October 25, 2022

Understand the different benefits before you enroll.

For many of us, the first time learning about life insurance is with our first “real” job with benefits or when we experience a major life event, like marriage or the birth of a child. And since life insurance isn’t really a course offered in many high school or college classrooms, it’s no surprise you can feel overwhelmed and confused by the different types offered and what each policy entails. To set you up for success, we’re breaking down the basics. 

What is life insurance?

As the name implies, life insurance is an insurance policy on a person’s life. According to LIMRA’s 2021 Insurance Barometer Study, 52% of Americans reported owning some type of life insurance in January 2021. But, why should the other 48% consider life insurance and what sort of options are out there? Let’s dig in.

Why life insurance?

There are a number of reasons, but consider this powerful stat from LIMRA: 42% of Americans would face financial hardship within six months if the primary wage-earner were to die unexpectedly. Life insurance can serve as a safety net for families by providing financial support if the policyholder passes away suddenly. 

42% of Americans would face financial hardship within six months if the primary wage-earner were to die unexpectedly.

If you have life insurance, you can rest easy knowing your loved ones are protected, even if something happens to you. Circumstances can change and future insurability is not a given. Once you get coverage, you’ll never lose it due to health changes. Plus, the price of life insurance increases as you grow older, so it’s a smart move to take action sooner rather than later. 

According to LIMRA, the primary reason 83% of people purchase a life insurance policy is to help cover final expenses, but other reasons to get life insurance include to replace lost income (68%), and to leave an inheritance (63%).

It’s also worth noting that life insurance policies can offer benefits even while you’re living. For example, if you get a policy with a standard terminal illness rider, you could access a portion of the policy’s death benefit if you become terminally ill. 

How much does a life insurance policy cost?

There are a number of factors that can influence the cost of a life insurance policy, including age, health status, tobacco usage, and term length. However, research finds people wildly overestimate the cost of term life insurance. If you’re trying to better gauge the cost of a life insurance policy, our Ease Marketplace partner Ethos offers this example: a healthy 35-year-old non-smoker can buy a 10-year, $1,000,000 term life policy for about $65 per month — that’s less than the cost of many auto and home insurance policies. 

What’s the difference between permanent and term life insurance?

One of the biggest differences between permanent and term life insurance is the duration of the policy. The second difference is the ability for the policy to accumulate a cash value.

Permanent life insurance, like whole life insurance or universal life insurance, is intended to cover an individual’s entire life. Because of this, a permanent life policy is typically more expensive, but it serves as a long-term investment, accumulating a cash value that can grow tax-free throughout a person’s lifetime. 

On the other hand, term life insurance is a policy for a set period of time, or term. Common terms are between 10 and 30 years. Unlike a whole life policy, there’s no cash value accumulation with term life insurance. That means the benefits of a term life insurance policy are only available during the specified term. This, plus the shorter duration of a term policy, can make term life insurance a more affordable option. 

What about whole life insurance vs. universal life insurance?

One type of permanent life insurance is whole life insurance. With a whole life insurance policy, you’re guaranteed to pay the same monthly premium your entire life, no matter what. Whole life policies serve as a financial asset to the policyholder because they also guarantee their cash value. That means you can borrow or withdraw funds from your policy to supplement retirement income or use it as collateral for a big investment, like a home loan. To support these guarantees, however, whole life policies typically cost more up front.

Universal life insurance is another type of permanent life insurance. With universal life insurance, monthly premiums and cash value can both fluctuate depending upon the interest rates associated with your specific policy, as well as how much you pull from the cash value.

Both universal and whole life insurance are lifelong policies. While a universal policy might be more flexible, it also comes with more risk than a whole life policy. As with all major financial decisions, it’s important to discuss your options with a financial professional.

What’s the difference between individual life insurance and group life insurance?

Many employers offer employer-paid group life insurance through their benefits plans. This type of basic group life insurance is typically 1-2x an employee’s annual salary. While this is a helpful and generous employer-sponsored benefit, even 2x an annual salary is likely not enough to help fund final expenses and help a grieving family maintain their way of life. 

Some employers may also offer voluntary life insurance during benefits enrollment, where employees can opt in to supplemental coverage for a monthly fee. This can help cover additional expenses, but in most cases, these types of policies don’t stay with you if you switch jobs or exit the workforce. 

Group life insurance may also be available through other large organizations you belong to, like unions or professional associations. 

Unlike group life insurance, individual life insurance is purchased directly from an insurance agent or marketplace and is not contingent upon retaining membership status within a particular association or employment with a certain employer. An individual life insurance policy, whether term or permanent, will stay with you no matter your employment status. 

Individual life insurance through Ethos

Ethos, an Ease Marketplace partner, can help employees find the right individual life insurance policy for their needs, with zero hassle. In their 100% online application, you answer a few health questions instead of going to the doctor or taking blood tests. Ethos approves up to 95% of applicants in about 10 minutes, helping employees find the coverage they need from carriers they trust. 

Plus, with Ethos, employees can enable coverage at any time, even outside of open enrollment, with no additional assistance required from their Ease broker. 

Ethos approves up to 95% of applicants in about 10 minutes, helping employees find the coverage they need from carriers they trust. 

Group and voluntary life insurance from your preferred carrier partners

Ease is proud to partner with a number of leading insurance carriers including: Aflac, Allstate, Assurity, Beam, Colonial Life, Equitable, Guardian, Lincoln Financial, ManhattanLife, MetLife, Mutual of Omaha, Principal, Reliance Standard, Sun Life, The Standard, Transamerica, Trustmark, and Unum. Through our direct carrier connections, brokers and employers alike can enjoy streamlined enrollment and a seamless sync of data between Ease and their preferred carrier partners. 

Make the most of your life insurance options

Life insurance comes in many forms and can help protect those you love. We understand choosing which type of life insurance policy is right for you is anything but an everyday financial decision. That’s why we recommend you talk with a trusted financial professional to discuss your life insurance options. 

Already an Ease user?

Log in to your benefits portal to see if your broker has enabled Ethos coverage or to learn more about the specific life insurance benefits your employer provides, including plan details and per-paycheck cost breakdowns of employer-sponsored life insurance plans. 

Not an Ease user but want to learn more? Browse the marketplace

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