Your life insurance policy: What does it actually cover?

The purpose of life insurance, at its core, is to provide financial security for your family if something should happen to you.

But if you’re like most people, you have no idea how much your policy actually covers — or what it doesn’t cover.

This blog post aims to clear the air by explaining exactly what a life insurance policy covers and what it doesn’t.

Whether you’re an experienced policyholder or just starting out on your search, this guide will give you the background knowledge you need to make an informed decision about purchasing life insurance coverage in the near future.


If you die while you’re still insured, the beneficiary will receive a sum of money equal to the amount of your premiums that were paid in over the years.

This money can be used to help pay off debts and other expenses, or they may choose to use this money for something else.

If there is no beneficiary named, then the death benefit goes back to the insurance company.

Health related benefits: If you are diagnosed with an illness, disability or any other health issue, life insurance provides financial protection against future out-of-pocket medical costs and also takes care of funeral costs if necessary.

You can also choose a critical illness rider which covers treatment for illnesses like cancer, stroke or heart attack. The cost of coverage depends on how much coverage you want and what type of plan you choose.

Term life insurance plans last for a set period of time (usually 10 or 20 years) and level term plans provide coverage until age 65 so the premium stays at one level rate throughout the duration of the plan.

Living Benefits

A living benefit is a feature of some life insurance policies that pays you, or your beneficiaries, a set amount of money each month in the event that you become disabled.

This means that if you are in an accident and your injuries prevent you from working, your monthly disability benefits will pay out for as long as the disability lasts.

For this reason, living benefits are particularly important to people with families who may be depending on them to provide financial support.

Another example of a living benefit is hospital confinement coverage, which provides payments for hospital expenses incurred after you have been injured in an accident.

A common misconception about life insurance is that it only covers funeral costs when someone passes away.

The truth, however, is that your life insurance policy covers many other things too! Some examples include providing income during periods of illness (such as short-term or long-term disability) and paying off debts like mortgage payments and car loans if you die unexpectedly.

Critical Illness

The basic idea behind a life insurance policy is that it will provide for your family if you die. A typical life insurance plan pays out a lump sum of cash to the beneficiaries of the plan, which will vary based on how old you are and what kind of coverage you purchase.

The amount that an insurance company would pay out in a lump sum can be anywhere from $250,000 to $5 million, depending on the type of coverage and your age.

A whole life insurance policy (which covers both your death benefit and your monthly payments) is one option; however, there’s no inflation protection because your premiums don’t increase with cost of living adjustments.

Variable Universal Life Insurance is another option. It provides inflation protection since your monthly premium goes up as interest rates go up, but the tradeoff is that they have higher rates than whole life policies.

Disability Income

A disability income is a type of life insurance that provides coverage for individuals who are unable to work due to an injury or illness.

It can be a valuable resource in the event that you cannot perform your job and continue to earn an income.

The amount of coverage you need will depend on your occupation, age, and health condition. For example, if you’re a high-risk athlete or manual laborer your need for coverage may be higher than someone who works in an office environment.

Your medical history also plays a major factor into how much coverage you should have.

Your physician can help you determine what level of coverage would be best for your situation.

Asking these questions may help guide you through this process: How much money do I need to support my family?

Do I have any other sources of income such as Social Security Disability Insurance (SSDI)? Am I married? Am I providing for children outside of my marriage through child support or alimony?
What types of benefits does my employer offer me when I am out sick?

Long-Term Care

In home care is expensive and can quickly drain your savings. Even if you don’t need long-term care now, you may need it at some point in the future.

You might also want to plan for the possibility that your spouse or partner will need long-term care in the future. However, not everyone needs a long-term care plan.

If you’re healthy and under 65 years old, chances are good that a standard Term Life Insurance policy with no rider should be enough to provide coverage until Medicare kicks in at age 65.

For those who have medical conditions or special circumstances such as children who rely on them financially, Long-Term Care Insurance would be appropriate as well as Term Life Insurance with a rider.

Some people may even opt to purchase both Term Life Insurance and Long-Term Care Insurance.

The best way to know what’s right for you is by taking a look at your current health status and considering how much money you’ll need in the future based on how much you’re able to earn.

If you decide that an individual policy isn’t right for you, there are many other types of group policies out there including term life insurance, whole life insurance, universal life insurance and variable universal life insurance.

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