Non Medical Life Insurance Pros and Cons

This guide answers the most common questions about non medical life insurance pros and cons.

How much term life insurance do I need? It is the first question most people ask, and the answer is easier to find than it seems. Start with what your family would need to pay off or replace, then subtract what you already have.

This guide walks through a simple method and shows how to match the term to the need.

Part of our complete guide: Term Life Insurance: The Complete Guide.

Non medical life insurance pros and cons: common questions

The short version:

What is the best non medical life insurance for ?

There's no single best policy. The right one depends on how much coverage you need, for how long, your budget and which carrier's underwriting fits your situation best.

We cover this in detail in How to Buy Non Medical Life Insurance: What to Know.

Mistakes to avoid

• Canceling coverage before new coverage is approved.
• Buying more than the budget can keep paying.
• Comparing only one carrier.

Non medical life insurance coverage amounts: how much non medical life insurance do you need?

Add up debts, the mortgage, the years of income your family would need and future costs like school, then subtract savings and any coverage you already have.

It's fine to start smaller and add coverage later if your budget changes, as long as your health still qualifies.

Term life coverage amount: how much coverage do you need?

There is no single right number. Start with the job you want the policy to do. If the goal is to pay off the mortgage, the loan balance is the floor. If you also want to replace income for a few years, add that on top.

Then subtract what you already have. Savings, investments and life insurance through work all count, though group coverage often ends if you change jobs. Many families end up with one policy for the mortgage and another for income, each with its own term.

How much term life parents need

For parents, term life insurance answers one question: if my income stopped, how would my family keep going? The policy can pay the mortgage, daily costs, child care and future school costs.

• Cover both parents, including a stay-at-home parent. Replacing child care and household work costs real money.
• Pick a term that lasts until the youngest child is on their own.
• Name a trust or custodian for minor children rather than naming them directly.

Sizing term life coverage: what is a term life ladder?

Needs shrink over time. A ladder lets your coverage shrink with them. Each policy is separate, with its own term and premium, and each one simply ends on schedule.

The trade-off is a little more paperwork. Many families find that worth it for the savings.

How life insurance is taxed

In most cases, your beneficiaries receive the death benefit generally income-tax-free. They file a claim, the insurer pays, and the money is theirs to use for the mortgage, bills or anything else.

• Interest can be taxable. If the benefit is paid in installments, the interest portion may be taxed.
• Estate tax is separate. A policy you own can count toward your estate. Most families never reach the federal estate tax limit, but large estates should plan ahead.
• Ownership matters. Who owns the policy, who is insured and who is the beneficiary can change the tax result. Three different people in those roles deserves a closer look.

This is general information, not tax advice. A tax professional can look at your exact situation.

Who gets the money: naming beneficiaries

Your beneficiary is the person, people or trust that receives the death benefit. Name a primary beneficiary and at least one contingent beneficiary, who receives the money if the primary beneficiary has already passed away.

• Use full names. "My children" can cause delays. Full names and relationships are clearer.
• Split it if you like. You can divide the benefit among several people in shares you choose.
• Think about minors. Insurers generally will not pay a large sum straight to a child. A trust or a custodian named under your state's rules avoids a court-appointed guardian.
• Review after life events. Marriage, divorce, a new baby or a loss in the family are all reasons to check your choices.

Beneficiary designations usually override your will. If your will says one thing and your policy says another, the policy form generally controls. Keep them in sync, and ask an attorney if your situation is complex.

Matching the term to the need

The right term ends when the need ends. This table shows common pairings.

Is term life right for you?