What Is Life Insurance, And Who Needs It?

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There is a problem in the United States: 40% of Americans have no life insurance policy in place. One of the main reasons for this is the fact that many of us still aren’t 100% sure about something – What is life insurance anyway? Why do I need life insurance? And, more importantly, how much life insurance do I need?

This leaves many families at risk of being hit with massive bills in the event of a loved one’s untimely death, and way too many households are currently unprotected. Life insurance is more affordable than you might think, and there are policy options for people in all walks of life.

Getting life insurance has never been easier:

  • High-quality and trustworthy companies like Ladder can generate a life insurance quote in minutes with a price lock guarantee. People love Ladder because there are no brokers, no upselling, no policy fees and you can cancel anytime.
  • There is also policy comparison site Policygenius which allows you to quickly compare and buy life insurance from dozens of companies.

But let’s not get ahead of ourselves. First, we must gain an understanding of what life insurance does for us and what type we should be shopping for.

What is Life Insurance? 

What is life insurance, anyway? Life insurance is exactly what it sounds like: an insurance policy on a human life. It sounds a bit morbid, and maybe a little depressing, to think about and plan for your own death – but a life insurance policy is absolutely vital if you want to make sure your loved ones are taken care of after you’re no longer around.

Just like any insurance policy, a life insurance policy is a simple contract between a policyholder (you) and a life insurance company. You pay an agreed-upon rate to the company, and when you die the insurance company pays a “death benefit” – to your loved ones (the beneficiaries)

Not all life insurance is the same, and there are different structures of policies for different types of customers.

Life Insurance Policy Types

If you’re asking yourself “do I need life insurance?” – you should really be asking what type of policy is best for you. While all life insurance plans achieve the same goal, there are different types of policy options that work better for different situations. The real question is: how much life insurance do I need?”

Before we get to that, however, let’s run through the different kinds of life insurance policies.

The three types of life insurance:

  • term life insurance
  • permanent life insurance
    • universal
    • whole

Term Life Insurance

Term life insurance policies provide protection for a specific amount of time, like 10 years, for example. These are typically the least expensive life insurance policies that offer the cheapest premiums – which remain the same during the life of the policy. When these plans reach the end of their term, policyholders can often choose to continue coverage at a higher premium.

Permanent Life Insurance

Permanent life insurance policies are pretty self-explanatory: they don’t have a set term and generally protect policyholders for a lifetime. For this lifetime coverage, these plans are typically more expensive than term life policies. There are two kinds of permanent life insurance: whole life insurance and universal life insurance.

Whole Life Insurance

Whole life policies provide lifetime coverage, and – for that reason – come with higher premium payments than those of term life insurance policies. Payments are fixed throughout the life of the policy. There is a death benefit, of course, and whole life insurance policies often have a savings component that enables cash to accumulate over time. Within this savings feature, cash value can build up on a tax-deferred basis.

Universal Life Insurance

Another form of permanent coverage is universal life insurance, which is a bit more flexible than whole life insurance – but both are generally more expensive than term life insurance policies. Universal life insurance plans are designed for lifetime coverage, but – unlike whole life insurance – universal policies are adjustable. Coverage and premium payments can be increased or decreased, at the request of the policyholder, in order to meet changing insurance needs.

Who needs life insurance?

Life insurance policies are designed to support family member(s) that would be affected financially in the event of your death. If someone, or more than one person, would suffer financially when you die, then you probably need life insurance.

The death benefit, which is paid as a lump sum, can replace the lost income resulting from your passing, and can help your dependents pay for their immediate financial needs, your funeral costs, pay for your children’s college, daily living expenses, and anything else that would be difficult or impossible without your income in the picture.

Life insurance policies are for anyone who wants the peace of mind that comes with knowing their families will be fine in the worst-case scenario.

This includes married people, single parent, parents in general, single people who support aging parents or siblings, and also:

  • Anyone leaving an inheritance: Your heirs could be hit with a 45% estate tax when they receive your estate. Life insurance proceeds, because they are paid immediately, can cover these expenses, along with legal fees, funeral costs, and other debts that your loved ones may need to deal with.
  • Small-Business Owners: Life insurance policies don’t only take care of your family. They can also protect your business partners by setting up a buy-sell agreement, which ensures that remaining business owners can buy the leftover company interests at a lower or earlier agreed-upon price. Also, key person insurance provides your company with the funding to find a replacement employee for an important position.

How Life Insurance Policy Cost is Determined

Life insurance quotes are generated based on some key factors:

  • How old you are: The older you are, the more your life insurance premium will likely be. This is simply because higher age comes with a logical increased risk of death and declining health.
  • How healthy you are: Many life insurance providers require policyholders to undergo a medical exam before coverage begins, taking into account family health history and smoking habits, for example. Some insurance companies require your doctor to submit an Attending Physician’s Statement (APS).
  • Your driving record: A motor vehicle report may be requested, so your life insurance company can see whether you are a reckless driver or not.
  • Your hobbies: If you like to go skydiving or diving with sharks, for example, your life insurance premium will likely be higher.


Some life insurance policies can have riders added onto them, which are mini contracts appended to your policy. Riders are like little “extras” that you pay more to add to your policy, such as:

  • Accidental death
  • Waiver-of-premium
  • Return-of-premium

These are just a few examples, and riders are very specific to your individual needs. Oftentimes, the extra cost won’t be worth it to you – and the money spent on riders can be better spent invested in other ways.

Buying Life Insurance

Different life insurance providers will have different ways of evaluating your risk as a policyholder, and will likely give you slightly different life insurance quotes. Policygenius is a life insurance comparison site which allows you to quickly compare and buy life insurance from dozens of companies.

There are standout life insurance providers that are designed with the modern policyholder in mind: online solutions that are easy and quick to apply for.


Ladder offers a quick application process that takes about five minutes and generates an instant decision on coverage. There are no brokers, which means no upselling. Ladder makes it super simple for policyholders to apply to increase or decrease their coverage with the click of a button, all online with no hidden fees. There are no policy fees, and you’ll benefit from a price lock guarantee. You can also cancel your policy whenever you want.

Get an instant life insurance quote from Ladder.

Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.

*This article has been updated on 11/16/21