You buy life insurance to protect the financial future of your loved ones. If you have group life insurance through your employer, you might think you don't need individual life insurance. However, group life insurance usually is not portable, so you lose it if you leave your job or are laid off. And that could leave the people you love without financial protection if you die.
Definition
An individual life insurance policy differs from a group or joint life insurance policy in that it only provides coverage for one named insured.
Underwriting
When you buy an individual life insurance policy, you must complete and submit an application that the insurance company will use to underwrite your policy. Underwriting is the process insurance companies use to asses your eligibility and figure your premium. Information needed to accurately underwrite an individual insurance policy includes name, gender, date of birth, and height and weight. The insurance company also will want to know if you have used tobacco in the past 12 to 24 months, if you have any health issues or if you are currently taking any medications.
Types
There are basically two types of individual life insurance policies: term and permanent life. Term life insurance provides temporary financial protection for a set period of time. It is designed to expire before you die. Permanent life insurance--which includes whole life, universal life and variable life--provides protection for as long as you live, as long as you continue to pay the premiums. Permanent life insurance also has a savings component.
Uses
Most people buy term life insurance to cover their needs during a specific time in their lives. For example, you might buy term insurance when your children are young, so that if you died your spouse could pay off the mortgage and your children would have money for college. When your children are on their own and you have paid off your mortgage and saved some money, your need for term life insurance might decrease. Most people buy permanent life insurance to pay final expenses, build an estate for their heirs or pay estate taxes.
Cost
Because individual life insurance is based on individual underwriting guidelines, someone with medical issues will pay more for an individual life policy than they would pay for a group life policy. Also, the benefit amount and type of policy play a huge role in the cost of an individual life insurance policy. For example, permanent life insurance is much more expensive than term insurance.
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