Understanding What Life Insurance Covers

Last Updated on November 15, 2024

The topic of life insurance can quickly become an overwhelming and confusing subject. There are so many legal limitations and guidelines. It’s quite an investment to make and before you do, you should understand how life insurance works and what is covered by it. 

After all, you certainly don’t want to make an investment in a product that isn’t going to pay off someday for your loved ones.  Generally a term life insurance, or whole life insurance policy is taken out for specific financial objectives.

Life insurance is not really about what it covers but more about who it covers. It’s typically purchased to “cover” a specific individual but in the end, that individual won’t be the one utilizing the funds so how does it really cover them?

We’re here to discuss just how life insurance works and help you understand what life insurance really covers.  Many people living with Diabetes don’t understand that they may qualify for the SAME types of life insurance coverage as people without Diabetes can obtain. With the advances in diabetes technology, and life insurance companies making their underwriting more diabetic friendly, it’s never been easier to obtain life insurance with diabetes.

Life Insurance Explained

Life insurance is basically a contract that you or someone signs with an insurance company. There are numerous insurance companies out there and they all offer unique types of products with specific terms and costs associated with them. 

Depending on your health and diabetes history, diabetes life insurance premiums can typically be found at a reasonable cost. Again, this can vary depending on a number of factors, including the type of policy and the amount of the policy that you choose. Your age, type of treatment, Diabetes control, and overall health also play a part in the cost of life insurance. 

Life insurance pays out when the insured party passes away. The funds of the policy are then paid to the beneficiaries that were assigned to the policy.  This death benefit is paid in a lump sum, and tax free payment to the beneficiary.

In short, if you purchase life insurance coverage on yourself, it’s with the intent of covering your family or your selected beneficiaries in a financial capacity when you pass away. 

Life Insurance Coverage

By now, we think you probably understand that life insurance is designed to cover a life. Overall, the intention is to financially cover someone close or important to you in some way. You might be covering your spouse, your children, your grandchildren, or even a foundation or organization. 

The best definition or explanation is to understand that life insurance covers the identified beneficiaries of the purchase policy.

The payout of any life insurance policy varies based on the term, when the insured person passes, and the purchased policy amount. There are also different types of policies, including whole life, term, guaranteed universal, indexed universal life, and variable life insurance. These all operate in different manners but the overall concept of coverage remains the same. 

Everyone’s financial situation will be different.  Therefore determining the proper amount of life insurance coverage will vary.  If uncertain of how much term insurance, or permanent insurance you may need, please simply contact us at (888) 629-3064.  An agent is happy to have a brief conversation, and assist you in determining how much life insurance your family needs.

Many people may need 10 times their annual salary.  Others may need to replace 15 to 20 years worth of salary.  Others may need to protect their family from an outstanding mortgage, or other type of installment death.  Life insurance is designed to be taken out for a number of reasons.  As long as a person can financially justify the need for coverage, there really isn’t a limit on how much insurance they can qualify for.

What Life Insurance Covers

To give you a clear picture, we want to break down just exactly what life insurance might be able to cover or pay for, essentially.  With the proceeds from a life insurance policy, there are no restrictions on how the death benefit payment can be used.  Your family would be able to use the life insurance proceeds however you instruct, or however they choose to do so.  Here are some great examples of what life insurance typically covers when it pays out. 

End of Life Expenses

One of the first things that will most likely need to be covered when the insured person passes away is their end-of-life expenses. These expenses can include medical costs if an illness was related to the passing. Many people can benefit from obtaining a burial insurance policy.

But beyond that, funeral and burial expenses are quite costly. Even with more affordable options like cremation, the costs rack up rather quickly. You’re looking at a minimum of probably around $10,000 for the average funeral.

The life insurance policy can help to alleviate the burden of these expenses from your loved ones.  For those who are in poor overall health, or who have poor control of their diabetes, they would still qualify for guaranteed acceptance whole life insurance policies.

Everyday Expenses

Every household has everyday expenses. These include things like rent, a mortgage, utility costs, clothes, groceries, health insurance, and so much more. If you write down all of the everyday expenses that your family experiences in a year, you will find these add up very quickly. 

Monthly bills certainly fall into this category but so do things like new shoes, school supplies, toiletries, repairs, activities, and so on.

When a family’s income is reduced by a person’s passing, it can become a challenge to keep up with the monthly bills, much less be sure that extra everyday expenses are also covered. You don’t want your family to have to wonder how they will buy groceries next week. 

Life insurance can help provide a nest egg and take care of these routine expenses. 

Mortgages and Debts

Every household tends to have debt of some sort. Whether it’s a mortgage, credit cards, student loans, or some other type of debt, life insurance can help cover these. This is a similar situation to everyday expenses. 

While you were alive, you most likely had income that contributed to these expenses. When you pass, your family is left with the expenses of these debts as well as the loss of your income. 

Life insurance can help to make these monthly payments or to pay off debt so the monthly payment is no longer a concern.   We would always recommend obtaining a traditional life insurance policy, compared to a mortgage insurance plan.

SBA Loans

If you are a business owner, you may need to obtain a life insurance policy to secure your loan.  Many lenders require life insurance to collaterally assign in order to get your loan approved.  This is extremely common.

Having Diabetes, you’ll want to allow yourself 3-4 weeks to complete the underwriting process.  Please do not wait until the last second to obtain coverage.  Life insurance for SBA Loans is easy to qualify for when you work with an expert from Diabetes Life Solutions.

Divorces

Many people who go through a divorce may end up needing to secure a life insurance policy to satisfy a court order.  If you find yourself being forced to pay child support, or spousal support, many courts will mandate you to have a life insurance policy in place. 

Why?  Because if you were to pass away why there’s a court order for payments, there’d be no guarantee the recipient would continue to receive payments.  Life insurance would guarantee this, thus why courts may require you to have a term insurance policy in place.  Having Diabetes will make securing a life insurance policy for a divorce a little trickier.  Allow yourself plenty of time to apply, and be approved for insurance.

Medical expenses or long-term care—while you’re still alive

Here’s an insider’s tip.  For certain life insurance policies, you do not have to be dead, to gain access to the death benefit.  Here at Diabetes Life Solutions, we are advocates of policies that offer living death benefit riders at no extra cost.

These riders, attached to the policy, allow you to accelerate part of the death benefit, while still living.  In event you are diagnosed with a terminal illness, critical illness, or a chronic illness, you and your family could use part of the death benefit to address any medical expenses, or to help pay for long term care costs.  It’s always important to discuss what life insurance riders may be available to you.

Dependent Expenses

Consider this scenario. You were the bread-winner for your home. You had a great salary and your spouse was able to stay home with the children. Whether your passing was expected or unexpected is irrelevant. 

Suddenly, you’re gone and your spouse, who hasn’t worked in 7 years, has to get a job. The children they cared for at home have to be placed in child care and your spouse has to find a job. Since they’ve focused on staying home and raising children, they won’t make anywhere near your salary. 

These are the very things that life insurance is designed to cover.  When working with an independent agent with Diabetes Life Solutions, your agent will make sure to address all of your financial needs.

Your Legacy Matters

If you’re reading these things and thinking they don’t apply to you, this one certainly will. Everyone has some sort of legacy that they want to leave. Whether that legacy is providing for family when you’re gone, contributing to a non-profit foundation, or making sure your grandchildren have college paid for, these are all things that life insurance covers. 

You can determine your legacy and life insurance can foot the bill for ensuring your legacy when you are gone.  Life insurance is the most tax efficient way to pass on money.  It’s tax free in most situations, so if planning for your family’s future, it’s generally a wise move to make sure you have the proper insurance policies in place.

Protect your Loved Ones with Life Insurance

We hope you understand more what life insurance truly covers from this simple guide.  Life insurance is about taking care of those you leave behind, no matter your situation. There is a great possibility that the life insurance proceeds will be tax-free, at least up to a certain amount.  We are here to help you obtain the best policy possible, that will benefit your family should something happen to you.

Consider what you leave behind when you’re gone and how you want to care for those closest to you.  We help nearly a thousand families who live with Diabetes a year with their life insurance needs.  Please don’t hesitate to contact us, and let an agent assist you.  You’ll find out that life insurance is one of the most important financial decisions a person can make, to protect their family.  Use our expertise and allow us to help you make the best possible decision.