What is a family life cycle?
The emotional and intellectual stages you pass through from childhood to your retirement years as a member of a family are called the family life cycle. In each stage, you face challenges in your family life that allow you to build or gain new skills. Gaining these skills helps you work through the changes that nearly every family goes through.
Not everyone passes through these stages smoothly. Situations such as severe illness, financial problems, or the death of a loved one can have an effect on how well you pass through the stages. Fortunately, if you miss skills in one stage, you can learn them in later stages.
The stages of the family life cycle are:
- Coupling or marriage.
- Parenting: babies through adolescents.
- Launching adult children.
- Retirement or senior years.
Why is it important to understand the family life cycle?
Mastering the skills and milestones of each stage allows you to successfully move from one stage of development to the next. If you don't master the skills, you may still move on to the next phase of the cycle, but you are more likely to have difficulty with relationships and future transitions. Family life cycle theory suggests that successful transitioning may also help to prevent disease and emotional or stress-related disorders.
Whether you are a parent or child, brother or sister, bonded by blood or love, your experiences through the family life cycle will affect who you are and who you become. The more you understand about the challenges of each stage of the cycle, the more likely you are to successfully move on.
What can disrupt the normal cycle?
The stress of daily living, coping with a chronic medical condition, or other life crises can disrupt the normal life cycle. Ongoing stress or a crisis can delay the transition to the next phase of life. Or you may move on without the skills that you need to easily adapt and transition to the next phase of life.
How can I improve my family life cycle?
Be assured, you can learn missed skills and improve your and your family's quality of life at any stage. Self-examination, education, and perhaps counseling are ways to improve yourself and your family life. These are also actions that can help you manage other issues, too, such as going through a divorce or being a part of a nontraditional family structure.
Independence is the most critical stage of the family life cycle. As you enter young adulthood, you begin to separate emotionally from your family. During this stage, you strive to become fully able to support yourself emotionally, physically, socially, and financially. You begin to develop unique qualities and characteristics that define your individual identity.
Intimacy is a vital skill to develop during your independent, young adult years. Intimacy is the ability to develop and maintain close relationships that can endure hard times and other challenges. In an intimate relationship, you learn about:
- Commonality or similarity.
- Dependence on another person who is not in your family.
- Shared emotion in a relationship.
You also learn who you are outside of your identity within your family. Your ability to develop an intimate relationship depends on how successful you were at developing your individual identity earlier in life.
If you are a lesbian, gay, bisexual, or transgendered person (LGBT), this stage may include making your sexual orientation known, or "coming out" to your family and friends.
Exploring interests and career goals is part of developing independence. To live successfully away from your family, you must develop financial and emotional independence.
You also begin to be responsible for your own health in this stage. You become responsible for your nutritional, physical, and medical needs. Developing healthy habits at this time—such as good nutrition, regular exercise, and safer sex practices—is important for lifelong good health and happiness.
You learn new aspects of independence throughout your lifetime. Even when you have moved on to another stage of life, such as coupling, you continue to learn independence within the context of that stage.
During the independence stage, you hope to:
- Learn to see yourself as a separate person in relation to your original family—parents, siblings, and extended family members.
- Develop intimate peer relationships outside the family.
- Establish yourself in your work or career.
Other important qualities you develop during this phase include:
- Work ethic.
- Identity, or who you are in the world.
The next stage in the family life cycle may be coupling. Using qualities such as trust that you gained in the independence stage, you can explore your ability to commit to a new family and a new way of life. Although being in an intimate relationship with someone does involve a process of adaptation and relationship building, a marriage or committed union often requires unique skills.
When you join families through a marriage or committed union, you form a new family system. Your family system includes your personal ideas, expectations, and values. These are shaped by the relationships and experiences with your original family. When you marry or form a union, you combine your family system with your spouse's or partner's. This requires reshaping your goals and your partner's goals. In the most functional relationships, partners have the ability to take two different points of view and create an option that neither person had considered. It differs from a compromise in that it is not giving up something. Rather, it is creating a third, better option.
You may find that some of the ideas or expectations that you held in the past are not realistic at this stage. Some common areas of adjustment include:
- Recreational activities or hobbies.
- Relationships with in-laws.
- Sexuality or sexual compatibility.
- Putting another person's needs before your own.
The ultimate goal at this stage is to achieve interdependence, which occurs when you are able to fully enter into a relationship with another person. Interdependence also requires that you share goals and that you are able to sometimes place the needs of another above your own. But before you can achieve interdependence, you must first have a high degree of independence.
The relationship skills you learn in coupling serve as a foundation for other relationships, such as parent-child, teacher-student, or physician-patient.
Within a couple, you learn:
- Advanced interpersonal communication.
- Problem-solving skills.
- Common spiritual and emotional development goals.
- How to form boundaries in relationships.
- When to place the needs or importance of the other person above your own.
Most research shows that early on, a happy marriage is full of passion and sexual intimacy, which can become less important in later successful marriage. A satisfying marriage at this stage includes a high amount of considerate or kind acts (such as doing something nice for the other person without being asked) and praise.
The life skills you learn in this stage are important in developing true interdependence and the ability to have a cooperative and healthy relationship. Some of the challenges of this stage include:
- Transitioning into the new family system.
- Including your spouse or partner in your relationships with friends and family members.
- Being committed to making your marriage work.
- Putting the needs of another ahead of your own.
You and your partner will have less stress if the transition into a new family system is smooth. Less stress often means better health.
Your specific goals for this stage of the family life cycle are:
- Forming a new family with your partner.
- Realigning your relationships with your family of origin and your friends to now include your spouse.
Parenting: Babies Through Adolescents
Making the decision to have a baby
At some point in your relationship, you and your partner will decide if you want to have a baby. Some couples know going into a relationship that they do not want children. Parenting is one of the most challenging phases of the family life cycle.
The decision to have children is one that affects your individual development, the identity of your family, and your relationship. Children are so time-consuming that skills not learned in previous stages will be difficult to pick up at this stage. Your ability to communicate well, maintain your relationships, and solve problems is often tested during this stage.
Introducing a child into your family results in a major change in roles for you and your partner. Each parent has three distinct and demanding roles: as an individual, a partner, and a parent. As new parents, your individual identities shift along with how you relate to each other and to others. The skills that you learned in the Independence and Coupling stages, such as compromise and commitment, will help you move to the Parenting stage.
Along with the joy that comes from having a child, you may feel a great deal of stress and fear about these changes. A woman might have concerns about being pregnant and going through childbirth. Fathers tend to keep their fears and stress to themselves, which can cause health problems.
Talking about your emotional or physical concerns with your family physician, obstetrician, or counselor can help you deal with these and future challenges.
Parenting young children
Adapting children into other relationships is a key emotional process of this stage. You will take on the parenting role and transition from being a member of a couple to being a parent. While you are still evolving as individuals, you and your partner are also becoming decision-makers for your family. Continuing to express your individuality while working well together as a couple results in a strong marriage.
Your child's healthy development depends on your ability to provide a safe, loving, and organized environment. Children benefit when their parents have a strong relationship.
Caring for young children cuts into the amount of time you might otherwise spend alone or with your partner. If you did not fully develop some skills in previous phases, such as compromise for the good of the family, your relationship may be strained. For example, divorce or affairs may be more likely to occur during the years of raising young children if parents have not developed strong skills from earlier life stages.
But for those who have the proper tools, this can be a very rewarding, happy time, even with all of its challenges. Optimally, you develop as an individual, as a member of a couple, and as a member of a family.
Specific goals when young children join your family are:
- Adjusting your marital system to make space for children.
- Taking on parenting roles.
- Realigning your relationships with your extended family to include parenting and grandparenting roles.
Parenting teenagers can be a rough time for your family and can test your relationship skills. It's also a time for positive growth and creative exploration for your entire family. Families that function best during this period have strong, flexible relationships developed through good communication, problem solving, mutual caring, support, and trust.
Most teens experiment with different thoughts, beliefs, and styles, which can cause family conflict. Your strengths as an individual and as part of a couple are critical as you deal with the increasing challenges of raising a teenager. Strive for a balanced atmosphere in which your teenager has a sense of support and emotional safety as well as opportunities to try new behaviors. An important skill at this stage is flexibility as you encourage your child to become independent and creative. Establish boundaries for your teenager, but encourage exploration at the same time. Teens may question themselves in many areas, including their sexual orientation and gender identities .
Because of what you learned when you developed your identity in the earlier stages of life, you may feel more prepared and more secure about the changes your child is going through. But if you did not work through these skills at earlier stages of life, you may feel threatened by your child's new developments.
Flexibility in the roles each person plays in the family system is a valuable skill to develop at this stage. Responsibilities such as the demands of a job or caring for someone who is ill may require each person in the family to take on various, and sometimes changing, roles.
This is a time when one or more family members may feel some level of depression or other distress. It may also lead to physical complaints that have no physical cause ( somatization disorders such as stomach upsets and some headaches) along with other stress-related disorders.
Nurturing your relationship and your individual growth can sometimes be ignored at this stage. Toward the end of this phase, a parent's focus shifts from the maturing teen to career and relationship. Neglecting your personal development and your relationship can make this shift difficult.
You also may begin thinking about your role in caring for aging parents. Making your own health a priority in this phase is helpful as you enter the next stage of the family life cycle.
Specific goals during the stage of parenting adolescents include:
- Shifting parent-child relationships to allow the child to move in and out of the family system.
- Shifting focus back to your midlife relationship and career issues.
- Beginning a shift toward concern for older generations in your extended family.
Empty Nest: Launching Adult Children
The stage of launching adult children begins when your first child leaves home and ends with the "empty nest." When older children leave home, there are both positive and negative consequences. If your family has developed significant skills through the family life cycle, your children will be ready to leave home, ready to handle life's challenges. Free from the everyday demands of parenting, you may choose to rekindle your own relationship and possibly your career goals.
Developing adult relationships with your children is a key skill in this stage. You may be challenged to accept new members into your family through your children's relationships. You may focus on reprioritizing your life, forgiving those who have wronged you (maybe long ago), and assessing your beliefs about life.
If you struggled with previous life phases, your children may not have learned from you all the skills they need to live well on their own. If you and your partner have not transitioned together, you may no longer feel compatible with each other. But remember that you can still gain the skills you may have missed. Self-examination, education, and counseling can enhance your life and help ensure a healthy transition to the next phase.
This is a time when your health and energy levels may decline. Some people are diagnosed with chronic illnesses. Symptoms of these diseases can limit normal activities and even long-enjoyed pastimes. Health issues related to midlife may begin to occur and can include:
You may also be caring for aging parents in this phase, which can be stressful and affect your own health.
Specific goals to reach at this stage include:
- Refocusing on your relationship without children.
- Developing adult relationships with your grown children.
- Realigning relationships to include in-laws and grandchildren when your children begin their own families.
Retirement or Senior Stage of Life
During the retirement phase of the family life cycle, many changes occur in your life. Welcoming new family members or seeing others leave your family is often a large part of this stage as your children marry or divorce or you become a grandparent.
This stage can be a great adventure where you are free from the responsibilities of raising your children and can simply enjoy the fruits of your life's work. Challenges you may face include being a support to other family members, even as you are still exploring your own interests and activities or focusing on maintaining your relationship. Many people are caring for elderly parents at this time. You may feel challenged by their emotional, financial, and physical needs while trying to help them keep their independence.
You may experience declining physical and mental abilities or changes in your financial or social status. Sometimes you must deal with the death of other family members, including your partner. The quality of your life, in part, depends on how well you adjusted to the changes in earlier stages. It often also depends on how well you have cared for your own health up to this point. Normal aging will affect your body, resulting in wrinkles, aches, pains, and loss of bone density. The chances of having a mental or chronic physical illness increases with age. But aging does not mean you will automatically experience poor health.
Retirement can be a fulfilling and happy time. Becoming a grandparent can bring you great joy without the responsibility of raising a child. But those who are without adequate support systems or not well off financially may have a more difficult time in this phase of life.
Specific goals to reach for at this final stage of your family life cycle include:
- Maintaining your own interests and physical functioning, along with those of your partner, as your body ages.
- Exploring new family and social roles.
- Providing emotional support for your adult children and extended family members.
- Making room in the family system for the wisdom and experience of older adults.
- Providing support for the older generation without doing too much for them.
- Dealing with the loss of a partner, siblings, and other peers, and preparing for your own death.
- Reviewing your life and reflecting on all you have learned and experienced during your life cycle.
Other Places To Get Help
U.S. Department of Health and Human Services: Administration for Children and Families
Other Works Consulted
- McGoldrick M, et al., eds. (2011). The Expanded Family Life Cycle: Individual, Family, and Social Perspectives, 4th ed. Boston: Allyn and Bacon.
- Newman BM, Newman PR (2012). Development Through Life: A Psychosocial Approach, 11th ed. Belmont, CA: Wadsworth Cengage Learning.
- Rentfro AR (2010). Health promotion and the family. In CL Edelman, CL Mandle, eds., Health Promotion Throughout the Lifespan, 7th ed., pp. 171–199. St. Louis, MO: Elsevier Mosby.
Primary Medical ReviewerAnne C. Poinier, MD - Internal Medicine
Specialist Medical ReviewerKathleen Romito, MD - Family Medicine
Current as ofNovember 20, 2015
Read the Spanish version: Conceptos básicos sobre seguro de vida
Many of us buy life insurance because we want to make sure that our loved ones remain financially secure after we die. Income replacement is the primary reason people buy life insurance.
Why do you need life insurance?
Non-earning caregivers also have an important — and often overlooked — economic value that should be covered by life insurance.
Life insurance is also purchased by those interested in achieving specific business or estate-transfer goals.
There are many types of life insurance policies depending on your goals, and there are huge price differences among different companies offering identical coverage.
Here's an orderly way to go about shopping for life insurance:
Life insurance is a long-term proposition, so you should pay particular attention at time of purchase and throughout the life of the policy to the financial stability ratings of your life insurance company. Ratings indicate a company's ability to pay claims.
How much life insurance do I need?
The first step in life insurance planning is to analyze your life insurance needs — meaning the economic needs of dependents left behind:
- Before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors. You might want to ask yourself who will be responsible for any outstanding medical bills and funeral costs. What would happen if your family had to relocate or otherwise change their standard of living once you've died? The assumption of immediate death is necessary to determine the current life insurance needs for a family or individual.
- Add in the longer-term financial needs of the remaining family members, such as: children's expenses, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund.
Because life insurance needs change over time, your life insurance amount should be reevaluated periodically. Insurance experts recommend revisiting the coverage of your policy once every five years or whenever you experience a major life event such as a change in income or assets, marriage, divorce, the birth or adoption of a child, or a major purchase such as a house or business.
In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exceptions would be protecting a business entity or paying taxes on a large estate for heirs. If the purpose of buying life insurance is to pay estate taxes, then you’ll need permanent life insurance, which is in-force as long as you live and pay the premiums.
Types of life insurance
Life insurance policies are divided into two main types:
- Term life insurance, which provides only a death benefit without any cash-value component (offering the least expensive cost per $1,000 of death coverage purchased).
- Permanent life insurance, which has a cash-value account in which a return-on-investment component becomes an often complex and expensive part of the policy (most expensive cost per $1,000 of coverage).
Term life insurance
Term life insurance is the easiest life insurance to understand: It provides death benefit protection without any savings, investment or cash-value components.
Term life insurance is available for set periods of time such as 10, 15, 20 or 30 years. With "annual renewable term life," your policy automatically renews and premiums increase each year. Choose "level term insurance" if you want your premium to stay the same for the duration of the policy. Also available is "decreasing term insurance," where premiums remain level but your death benefit declines over time. This is useful if you want to cover only a specific debt that decreases, such as a mortgage or business loan.
As long as you pay your premiums, the company cannot cancel you.
Term life insurance is a popular choice because of the long rate-guarantee periods. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your age and health status.
Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, look at 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term might fit the bill.
Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility.
- Guaranteed Renewal. Before you buy a term life policy, ask the agent or company to confirm that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a life insurance medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period.
For example, say that you’ve been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, albeit at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on.
- Guaranteed Convertible. Another built-in feature of most term life policies is the right to convert your coverage to any permanent cash value policy that the company offers at current rates without having to take another medical exam. This feature may be useful in the future if you decide you want cash value life insurance.
If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a "return of premium" (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, all your premiums are refunded (tax-free). Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.
Permanent life insurance options
If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or investment, you might consider cash value life insurance such as whole life insurance, universal life or variable life. But be prepared to pay much higher premiums per $1,000 of coverage because you are now funding a cash value account and paying fees and expenses.
In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.
Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.
Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages.
Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don’t like what you see there, walk away.
Another caveat: Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.
For more on cash value and an example of a policy illustration, read about cash value in life insurance: What's it worth to you?.
Whole life insurance
Ordinary whole life insurance offers “permanent protection” with a cash value account that grows over time. Whole life provides a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums. For example, a healthy 40-year-old female might pay $4,200 per year for a $500,000 whole life policy. The premium remains level at $4,200 per year for the rest of her life and, in the event of death at any age, the policy will pay $500,000 to her beneficiary.
Whole life also contains a cash value account that builds over time, slowly at first and gaining steam after several years. You can withdraw your cash value or take out a loan against it, but remember, if you die before you pay back the loan, the death benefit paid to your beneficiaries will be reduced.
Understand what your beneficiaries will receive upon your death. If you have a traditional whole life policy, your beneficiaries receive only the death benefit no matter how much cash value you've built up. Other payout options available for higher premiums are:
- Death benefit plus cash value
- Death benefit plus return of premium
Whole life policies can be issued as "participating" or "nonparticipating." Participating policies typically cost more but may return annual dividends if the insurer has a good financial year. Dividends are never guaranteed. Nonparticipating whole life insurance offers no dividends.
Buyers of whole life insurance like the certainty of fixed premiums with a known death benefit for life. They also appreciate the "forced savings" component and watching their cash value account build up.
Universal life insurance
This kind of policy offers greater flexibility than whole or term life. Universal life has many moving parts to understand before you buy.
After your initial premium payment, you can reduce or increase the amount of your death benefit. Also, after your initial payment, you can pay premiums any time and in any amount, as long as you don’t miss a minimum payment level. In some cases, there are limits to how much extra you can pay in advance. If you choose to increase your death benefit, you may have to provide medical proof that your health has not deteriorated.
Some universal life policies perform like term life insurance: They can be configured at the time of purchase to provide both level death benefits and level premiums that are guaranteed for life as long as you pay the scheduled premium.
Variable life insurance
Variable life offers a death benefit with a side fund that operates like an investment account.
The insurance company invests your premiums and offers you a choice of funds in which your money will be invested. Returns are not guaranteed. The amount of money your beneficiaries will receive and the cash value of your policy depend on how well the underlying accounts perform. Theoretically, the cash value can go down to zero and, if so, the policy will terminate. Some variable life policies will guarantee a minimum death benefit.
Other permanent life insurance considerations
When your cash value account grows large enough, it can be used by the insurer to pay your premiums for the rest of your life. This is known as being "paid up." You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support. Your policy illustration will show you how long it may take for your whole life policy to be "paid up."
If you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance coverage for a short time.
Riders add benefits
You can add riders to your life insurance policy that guard against a number of unpleasant situations. Your insurer will have its own list of available riders, but here are a few:
- Accelerated death benefit rider (aka living benefits rider): Pays the benefit early if you become terminally ill.
- Accidental death benefit rider: Pays an extra benefit if you die as the result of an accident.
- Long-term care rider: Pays for long-term care expenses should you not be able to do some of the "activities of daily living," such as dressing or toileting.
- Waiver of premium rider: Waives premium payments should you become totally disabled.
Cost of life insurance
Life insurance rates are based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (permanent life) or a specific period (term life).
Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your premiums or even result in your being declined.
Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums. For more, read how life insurance companies view you: underwriting categories.
Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions. For more, read how impaired-risk specialists find life insurance for people with medical problems.
How to buy life insurance
The life insurance applications process is paper-intensive, can take 30 to 60 days and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving both blood and urine samples to a paramedical professional. Though some insurance companies are offering policies with no medical exam and same-day approval, such as MetLife's Rapid Term policy, with higher limits. You can obtain up to $500,000 of coverage for terms ranging from 10 to 30 years.
When you send in your life insurance application, attach a check for your premium. This locks in coverage for you prior to the policy being issued.
Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history.
Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and medical history.
If it sounds tempting to shortcut this process by withholding information or outright lying, don’t do it. Policies that were sold based on applications that contained misleading information can be voided at claim time. False information on insurance applications is fraud.
Insurers will likely report your medical exam results (reported as numbered codes) to MIB (formerly called the Medical Information Bureau), which maintains a database of those who have applied for life, health, disability and other insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with MIB. The goal of the MIB database is to reduce fraud.
All standard life insurance policies cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).
How to avoid the underwriting process
If you want to avoid the underwriting process, you have two other, more expensive, options:
- Simplified issue term life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive choice.
- Guaranteed issue life insurance, such as final expense insurance, is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.
These two types of life insurance policies typically only allow for up to $50,000 worth of coverage.
In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.
Instant-approval life insurance: an emerging trend
If you are healthy and looking for term-life insurance, but want to skip the medical exam and avoid waiting for approval, instant-approval life insurance is worth considering. A few insurance companies now offer term-life policies that you can get without taking a medical exam. Instead, you answer questions online at the company website about your health and an accelerated underwriting process allows you to receive "instant" approval. Such policies typically cost much less than guaranteed-issue and simplified issue policies, and also offer much higher coverage limits.
Tips for buying life insurance
Working with a life insurance agent
After reviewing the various life insurance policies available, you might still be unsure about which best meets your needs. The American Council of Life Insurers recommends consulting an insurance agent.
Carefully study your agent's recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.
ACLI suggests these tips when purchasing life insurance:
- Ask for specifics of coverage so you can look at all your options.
- Check financial strength ratings to determine if your potential insurer is financially stable.
- Be wary of offers of "free" life insurance policies. Nothing is free. A good example is "stranger-originated life insurance" where the elderly are offered money from investors to buy their insurance policies.
- Answer all application questions honestly. Do not omit information.
- Make sure you get your policy within 60 days; if not, contact your insurance company to find out why.
- Your state likely guarantees a "free look" period, which is often 10 to 30 days after the policy has been in effect. If you decide you don't want to keep the policy, you will be given a full refund.
- Check the effective date on the policy.
- Review your policy every year or when a major life event occurs, such as buying a new house, having a child or getting married or divorced.
- If you have a complaint with an insurance company that isn't resolved after contacting a customer service representative, your state's department of insurance can help.
Insurance experts recommend these tips when deciding which type of life insurance to purchase:
If your agent recommends a term life policy, ask:
- What are the Standard & Poor's, A.M. Best, Fitch and Moody’s ratings of this insurance company?
- What is the initial rate-guarantee period? Is this term life policy renewable past the initial rate-guarantee period without a physical exam? If so, what are the premiums?
- Is this policy convertible to permanent insurance without a physical exam? If so, for what period of time do I have the right to convert?
If your agent recommends a permanent policy, ask:
- What are the Standard & Poor's, A.M. Best, Fitch and Moody’s ratings of this insurance company?
- Can you tell me, in writing, why you are recommending cash value insurance for me at this time?
- Why should I combine my life insurance protection needs with my investment objectives?
- Can you please prepare an analysis for me that shows the true cost of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years versus buying term life and investing the difference in long term bonds over those same time periods?
- How much is your first-year commission on this proposed cash value policy versus your commission on an equivalent term life insurance policy?
- Are these proposed annual premiums within my budget?
- Why do you think that I can commit to paying these premiums over the long term, perhaps decades?
- How much will I receive if I surrender the policy?