One tool, many jobs

Life insurance is one tool. People use it for very different jobs.

A death benefit is money that arrives at a known moment. What that money is for is the real decision. Start with the job, and the type of policy follows from it.

Life insuranceOne tool

Protecting people

The household jobs. Most coverage is bought for one of these.

Income replacementMoney to keep a household running for the years a paycheck would have.
Family protectionTime and options for the people who rely on you.
Mortgage and homeA way for your family to decide what happens with the house.
Debt and liquidityCash to settle what is owed without selling something in a hurry.
Final expensesA modest amount for arrangements and remaining bills.
ChildcareThe cost of replacing care an at-home parent provides.
EducationFunds a surviving parent could put toward school costs.
Support for a dependentLifelong support for a child or adult who will always need it.
Time for a family to decideRoom to grieve before making large financial choices.

Living benefits

Riders that may let part of the death benefit be used while you are alive.

Terminal illness riderMay advance part of the benefit after a qualifying terminal diagnosis.
Chronic illness riderMay advance benefit when the insured cannot perform certain daily activities, as the rider defines them.
Critical illness riderMay advance benefit after a listed condition, as the rider defines it.
Accelerated death benefitsThe general name for these features. Each has its own conditions and cost.

Availability, definitions, triggers, costs and benefit reductions vary by policy, carrier and state. Using an accelerated benefit reduces what is paid at death.

Long term and cash value

Jobs with no end date, done by permanent coverage.

Lifelong death benefitCoverage designed to be there whenever death occurs, if funded as required.
Cash value accumulationA policy value that may grow over time under the contract's terms.
Access through withdrawals or loansPossible where the contract permits. Loans accrue interest.
Supplemental liquidityOne possible source of funds among several, with trade-offs.
LegacyA defined amount left to specific people.
Juvenile policiesPermanent coverage on a child, owned by a parent or grandparent.
Future insurabilityWhere a rider applies, the option to buy more later without new medical underwriting.

Cash value builds slowly, after charges. Withdrawals and loans are available only where the contract permits, reduce the death benefit, and can have tax consequences. It is not money without a cost.

Business

Funding for the agreements and obligations a company has.

Key personFunds to steady a business that loses someone it depends on.
Buy-sell fundingCash to carry out the agreement your attorney drafts.
Partner protectionA way for surviving owners to keep control and a family to be paid.
Business debt and personal guaranteesCoverage sized to debt an owner has signed for.
SuccessionTime and liquidity for an orderly handoff.
Estate equalization for family businessesSomething for heirs who are not taking over the company.

Advanced planning concept, coordinate with tax and legal professionals

Executive benefitCoverage used as part of a compensation arrangement for a key employee.
Section 162 bonusAn employer bonus used to pay premiums on a policy the employee owns.
Split dollarAn arrangement where an employer and employee share a policy's costs and benefits.

Life insurance can fund an agreement. It does not replace one.

Estate and legacy

What is left, to whom, and whether the estate has cash when it needs it.

InheritanceA set amount paid directly to named beneficiaries.

Advanced planning concept, coordinate with tax and legal professionals

Estate liquidityCash for taxes and costs so assets do not have to be sold quickly.
Equalization among heirsBalancing what each heir receives when assets cannot be divided evenly.
Charitable givingA gift to a cause, by naming it as beneficiary or by other arrangements.
Trust owned life insurance and ILIT conceptsA policy owned by a trust an attorney drafts, often for estate planning.

Not every policy can do every job. The objective comes first and the product is chosen after it.

Request a coverage review Read the full guide to the jobs

Concept names decoded

Same few policies. Many different names.

Most of what you hear about life insurance is a purpose or a sales name sitting on top of a handful of policy types. Open any name to see what it is, what it may do and what it does not promise.

Mortgage Protection“Insurance that pays off the house if I die.”

What it actually is: A purpose for individually owned life insurance. You own the policy and name the beneficiary, who decides how the money is used. It is not PMI, homeowners insurance or lender owned decreasing coverage.
Common policy types: Usually term matched to the years left on the loan. Sometimes permanent coverage.
What it may accomplish: Give your family the means to keep the home, pay it down or sell without pressure.
What it does not guarantee: That the mortgage is paid off. The beneficiary receives the money and chooses. Approval depends on underwriting.

Questions to ask

Who receives the benefit, my family or a lender?
Does the benefit stay level or shrink with the loan?
What happens to the coverage if I refinance or move?