Money and You: Course Notes

Life insurance is an insurance that pays money upon someone’s death. The idea is that when a particular person dies, it can create financial hardship on someone else. For example, when someone dies, it will likely put financial hardship on their spouse who now has to fund all bills themselves. Most commonly, people purchase life insurance on their own death with a family member as the beneficiary of the money paid by the insurance company.

Some employers offer subsidized life insurance for employees, which pays some number of years’ worth of their salary to the beneficially.

Life insurance premiums vary wildly from person to person. Consider a 20-year-old person with a healthy lifestyle and a 90-year-old person who chain smokes and has chronic heart issues. One is more likely to die this year than the other. So, the premium for one will be higher than the other. Life insurance can be as cheap as $1 per month or up to thousands of dollars per month. There are a number of factors that contribute to life insurance costs. Your age, how much you want paid to your beneficiary, whether you smoke, your overall health, where you live, where you work, how far you commute to work, your hobbies, etc. There are some other demographics like gender, race, etc. that may or may not play a factor, depending on state law.

The most common form of life insurance is term life insurance. Term life insurance is life insurance that you can have up to a certain age. If you die before that age, your beneficiary gets the agree money. If you reach that age without dying, your policy ends. Term life insurance is much cheaper than other whole-insurance options, which makes them more popular.

Whole life insurance is insurance with no age expiration. You are guaranteed coverages throughout your whole life. The downside of whole life insurance is that it is much more expensive. There is a common problem with the whole life insurance industry in that it can be predatory. Life insurance companies often target elderly people without life insurance with advertisements for whole life insurance, which is extremely expensive for the elderly. Commercials often center around scaring elderly folk into putting the cost of their death and funeral on loved ones.

Life insurance can even cover loss of quality of life. There are plans that will pay you if you experience certain life-limiting issues. There are plans that will pay for assisted-living care in old age, if certain health conditions are met. There are policies that have a savings element to them. The industry is very broad and complex. The ins and outs are way beyond the scope of this course. For now, just know the basic forms of life insurance.