INSURANCE 101

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LIFE INSURANCE BASICS

Life insurance can seem complicated, but the basic purpose is straightforward: to provide financial protection for the people or organizations that depend on you. The right type and amount of coverage depends on your income, family responsibilities, debts, financial goals, and how long you expect to need protection.

TERM LIFE INSURANCE

Term life insurance provides coverage for a specific period of time, commonly 10, 20 or 30 years. It can be a cost-effective way to purchase a larger death benefit during the years when your family may depend most heavily on your income. Term insurance is often used to help protect against obligations such as a mortgage, income replacement, education expenses, or other family needs.

PERMANENT LIFE INSURANCE

Permanent life insurance is designed to provide coverage for life as long as the policy remains in force and its requirements are met. Depending on the type of policy, permanent insurance may also build cash value that the policy owner can access during their lifetime. Whole life and universal life are common forms of permanent insurance.

WHOLE LIFE INSURANCE

Whole life insurance is a form of permanent life insurance that generally provides a guaranteed death benefit, scheduled premiums, and guaranteed cash-value accumulation when policy requirements are met. Some policies issued by participating insurers may also be eligible for dividends, although dividends are not guaranteed.

UNIVERSAL LIFE INSURANCE

Universal life insurance is a form of permanent coverage that can provide flexibility in premiums and death benefits. Different types of universal life insurance can have very different guarantees, cash-value features, costs, and risks, so it is important to understand how a particular policy works before purchasing it.

PROTECTING MORE THAN YOUR LIFE

DISABILITY INCOME INSURANCE

Your ability to earn an income may be one of your most valuable financial assets. Disability income insurance is designed to replace a portion of income when a covered illness or injury prevents you from working. Policy definitions, waiting periods, benefit periods, and coverage amounts vary, making it important to compare policies carefully.

LONG-TERM CARE INSURANCE

Long-term care insurance can help pay for covered care when someone needs assistance with activities of daily living or experiences a qualifying cognitive impairment. Coverage may help pay for services provided at home, in assisted living, or in other eligible care settings, depending on the policy.

ANNUITIES

An annuity is a contract with an insurance company designed to accumulate funds, provide income, or both. Depending on the type of annuity, it may offer guarantees related to principal, interest, or future income. Annuities vary significantly in their features, costs, liquidity, and tax treatment and should be evaluated in the context of an individual’s overall financial goals.

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FREQUENTLY ASKED INSURANCE QUESTIONS

How much life insurance do I need?

The right amount of life insurance depends on your income, debts, family responsibilities, existing assets, and long-term financial goals. A good starting point is to consider the income your family would need to replace, outstanding debts such as a mortgage, future expenses such as college, and any existing savings or insurance. Rather than relying on a simple rule of thumb, we can help you determine an appropriate amount of coverage based on your individual circumstances.
What is the difference between term and permanent life insurance?

Term life insurance provides coverage for a specified period, commonly 10, 20, or 30 years. Permanent life insurance is designed to remain in force for life as long as the policy requirements are met and may also accumulate cash value. Term insurance generally provides more death benefit for a lower initial premium, while permanent insurance may be appropriate when lifelong coverage or cash-value features are important.
How much does life insurance cost?

The cost of life insurance depends on several factors, including age, health, coverage amount, policy type, tobacco use, and the length of coverage. Because insurance companies evaluate these factors differently, comparing policies from multiple highly rated insurers can help identify competitive coverage for your individual circumstances.
Does life insurance become more expensive as I get older?

Generally, yes. Age is one of the primary factors insurance companies use when determining life insurance premiums. All else being equal, purchasing coverage at a younger age usually results in lower premiums than purchasing the same coverage later in life. Changes in health can also affect future insurability and cost.
Can I get life insurance without a medical exam?

Yes. Some insurance companies offer life insurance without a traditional medical exam. Depending on the policy and applicant, the insurer may use health records, prescription history, consumer data, and answers to health questions during underwriting. No-exam coverage can be convenient, although eligibility, coverage amounts, and pricing vary by insurer.
Can I get life insurance if I have health problems?

Often, yes. Having a medical condition does not automatically prevent someone from qualifying for life insurance. Different insurance companies may evaluate conditions such as high blood pressure, diabetes, heart disease, or previous cancer differently. Working with an independent insurance professional allows applications to be matched with insurers whose underwriting may be more favorable for a particular situation.
How long does it take to get life insurance?

Approval can range from a few days to several weeks depending on the policy and underwriting required. Some applicants may qualify for accelerated underwriting without an exam, while others may need medical records, laboratory testing, or additional information before an insurance company can make an offer.
Are life insurance proceeds taxable?

Life insurance death benefits paid to a beneficiary are generally received free from federal income tax. However, there are circumstances in which taxes can apply, including certain ownership arrangements, transfers of policies, or interest paid on retained proceeds. Clients with complex tax or estate-planning situations should consult their tax or legal advisor.
What are living benefits in life insurance?

Living benefits are policy features or riders that may allow an insured person to access a portion of the policy’s death benefit while still living after a qualifying event, such as certain chronic, critical, or terminal illnesses. Availability, qualifications, costs, and benefits vary by policy and insurance company.
What is disability income insurance?

Disability income insurance is designed to replace a portion of your income if a covered illness or injury prevents you from working. Policies can differ significantly in how they define disability, how long you must wait before benefits begin, how long benefits can continue, and the amount of income they replace.
Are disability insurance benefits taxable?

It depends primarily on who paid the premiums and whether those premiums were paid with pre-tax or after-tax dollars. Benefits from an individually owned disability policy paid with after-tax dollars are generally received income-tax free. Different tax treatment may apply to employer-paid or pre-tax coverage, so individual circumstances should be reviewed with a tax professional.
What is long-term care insurance?

Long-term care insurance is designed to help pay for covered care when someone needs assistance with activities of daily living or has a qualifying cognitive impairment. Depending on the policy, benefits may be available for care received at home, in an assisted-living community, nursing facility, or other eligible setting.
When should I consider long-term care insurance?

Long-term care planning is often considered before care is actually needed, commonly during a person’s 50s or early 60s. Age and health can affect both eligibility and premiums, so waiting until a health event occurs can limit available options. The appropriate timing depends on health, assets, retirement plans, family circumstances, and how you intend to fund potential future care.
What is the average monthly cost of long-term care in Colorado?

Long-term care costs in Colorado vary considerably depending on the type and amount of care needed. According to the 2025 Genworth/CareScout Cost of Care Survey, the statewide median cost of assisted living is approximately $6,525 per month. A non-medical in-home caregiver, based on the survey’s standard usage, costs approximately $7,913 per month, while nursing-home care costs approximately $10,159 per month for a semi-private room and $12,182 per month for a private room.
Actual costs vary by location, provider, and level of care. Planning ahead can help Colorado families determine how they would fund these potential expenses.
What is an annuity?

An annuity is a contract issued by an insurance company that can be used to accumulate money, provide income, or both. Depending on the type of annuity, it may provide guarantees related to interest, principal, or future income. Annuities vary significantly in their features, liquidity, surrender charges, expenses, and potential risks.
What is a MYGA?

A Multi-Year Guaranteed Annuity, or MYGA, is a fixed annuity that provides a guaranteed interest rate for a specified period, such as three, five, or seven years. Interest generally accumulates tax-deferred until withdrawn. MYGAs are issued by insurance companies and are not bank deposits or FDIC-insured. Guarantees are based on the claims-paying ability of the issuing insurance company.
Are MYGAs a good alternative to certificates of deposit (CDs)?

A Multi-Year Guaranteed Annuity (MYGA) can be worth comparing with a CD when someone wants a guaranteed interest rate for a specified period, but there are important differences.
MYGAs are insurance contracts, and their earnings generally grow tax-deferred until withdrawn. CDs are bank products, and interest earned in a taxable account is generally taxable as it is credited. CDs may be FDIC-insured within applicable limits, while MYGAs are not FDIC-insured and are backed by the claims-paying ability of the issuing insurance company.
MYGAs can also have surrender charges and restrictions on withdrawals. If taxable amounts are withdrawn before age 59½, an additional 10% federal tax may apply unless an exception is available. Which product is more appropriate depends on liquidity needs, time horizon, tax considerations, and financial objectives.
Why work with an independent insurance professional?

An independent insurance professional is not limited to the products of a single insurance company. At Life Insurance Specialists, we can evaluate products from multiple highly rated insurers and help clients compare coverage, underwriting, pricing, guarantees, and policy features based on their individual needs.
Do I need a local life insurance agent in Colorado?

You do not have to use a local agent to purchase life insurance, but working with a Colorado-based insurance professional can provide a more personal experience and a local point of contact. Life Insurance Specialists works directly with Colorado individuals, families, and business owners while comparing products from multiple insurance companies.
Does living in Colorado affect my life insurance rates?

Life insurance rates are generally based more heavily on factors such as age, health, tobacco use, coverage amount, policy type, and underwriting history than on where you live within Colorado. However, insurance products and availability are regulated at the state level, so the policies available can vary by state.
Where does Life Insurance Specialists serve clients?
Can you compare life insurance companies for me?

Yes. Life Insurance Specialists is independent, which allows us to evaluate coverage from multiple insurance companies rather than being limited to a single carrier. We can compare factors such as premiums, underwriting requirements, policy features, guarantees, financial strength, and available riders to help you understand your options.

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Glossary of Terms

accelerated benefits

AKA “living benefits.” This rider allows you, under certain circumstances, to receive some, or all, of the life insurance death benefit before you die. Becoming terminally ill, critically ill or chronically ill (i.e. the need for long-term care, or confinement to a nursing home.)

annuitant

The annuitant is the person whose life expectancy helps determine certain annuity payments or benefits. The annuitant may also own the contract or receive payments, but these roles can belong to different people.

annuity

A contract that provides for a series of payments to be made or received at regular intervals. There are many kinds of annuities. The most common are immediate and deferred annuities, either of which can be a fixed, indexed or variable in nature.

assignee

The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.

attained age

The current age of the insured.

beneficiary

The person or other party designated to receive the proceeds by the owner of the insurance policy.

broker

An insurance agent who sells insurance products for more than one insurance company.

business-continuation insurance

A type of business insurance designed to provide funds so the remaining partners in a business, or the remaining stockholders in a closely-held corporation, enables the purchase of business interest of a deceased or disabled partner or stockholder.

cash value

Cash value is the amount that can accumulate within a permanent life insurance policy. Depending on the policy, you may access it through loans or withdrawals. If you cancel your coverage, the cash surrender value reflects applicable surrender charges and outstanding loans. Loans and withdrawals can reduce policy values and the death benefit.

claimant

The person or party making a formal request for payment of benefits due under the terms of an insurance contract.

collateral assignment

A transfer of some ownership rights in a contract from one party to another, generally for a temporary period. Insurance policies are often assigned as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid.

conditional premium receipt

A receipt given when the applicant pays the initial premium and under which life insurance will become effective before a policy is issued only if the proposed insured is found to be insurable. Also called a conditional receipt.

contestable period

The period of time (typically two years) when an insurer may challenge the validity of a life insurance policy.

death benefit

The amount of money paid or due to be paid when a person insured under a life insurance policy dies. This amount does not include adjustments for outstanding policy loans, dividends, paid-up additions, or late premium payments.

death claim

A request for payment under the terms of a life insurance policy.

disability income insurance

A type of health insurance designed to compensate insured people for a portion of the income they lose because of a disabling injury or illness. Generally, benefits for disability income insurance are provided for the disabled person in the form of monthly payments.

estate planning

Estate planning involves arranging how others will manage and distribute your assets if you become incapacitated or die. It can include wills, trusts, beneficiary designations, and powers of attorney. Life insurance can help provide funds to support beneficiaries or meet estate expenses.

face amount

The dollar amount stated as payable at the death of the insured or (in the case of an annuity) at the maturity of the contract. The face value is represented on the first page of the contract.

guaranteed insurability (GI) rider

An amendment to a life insurance policy that gives the policy owner the right to purchase additional insurance of the same type as provided in the original policy. The additional insurance can equal no more than an amount specified in the policy contract and can be purchased at specified premium rates and at specified times without new evidence of insurability.

guaranteed-issue insurance

Insurance coverage for which there is usually no individual underwriting. All eligible members of a particular group of proposed insureds who apply for the policy and who meet certain conditions are automatically issued a policy.

key-person insurance

Key-person insurance helps protect a business financially if an essential employee or owner dies. The business typically owns the life insurance policy, pays the premiums, and receives the death benefit. Separate key-person disability coverage can help protect against a qualifying disability.

lapse

The termination of an insurance policy which occurs if premium payments are neglected or not up to date.

life insurance

Life insurance pays a death benefit to your beneficiaries when you die, subject to the policy’s terms. This money can help replace income, pay debts, or support other financial needs. Some policies offer additional benefits during your lifetime.

long-term care (LTC) insurance

Long-term care insurance helps pay for covered care when you meet the policy’s benefit requirements. These commonly involve needing help with daily activities, such as bathing or dressing, or having a qualifying cognitive impairment. Depending on the policy, coverage may include care at home, in assisted living, or in a nursing facility.

mortality charge

The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the insured’s risk classification at the time of policy purchase, and the insured’s current age.

mutual insurance company

An insurance company owned by policy owners rather than stockholders.

needs analysis

Part of the fact-finding stage in the personal selling process; the process of developing a detailed personal and financial picture of a prospect in order to evaluate his or her insurance needs.

net amount at risk

The death benefit of a life insurance policy minus the policy’s reserve at the end of the policy year.

nonmedical application

An application for insurance in which the proposed insured is not required to undergo a medical examination. However, a nonmedical application does contain questions that the proposed insured must answer about his or her health.

nonmedical supplement

A report that describes the proposed insured’s health history. A nonmedical supplement is completed by the agent based on information provided by the proposed insured and can serve as part of a nonmedical application. Also called a nonmedical declaration.

non-tobacco risk class

An underwriting risk class that includes people who are standard risks and who have not smoked cigarettes for a specified period of time, usually 12 months, before applying for insurance. People in the nonsmoker risk class pay lower than standard premiums.

paid-up policy

An insurance policy that will provide benefits in the future but that requires no further premium payments.

paramedical report

A report based on a physical examination and a medical history completed by a medical technician, a physician’s assistant, or a nurse, rather than a physician. A paramedical report describes the health of a proposed insured and can serve as part of an insurance application.

policy

A written document that serves as evidence of an insurance contract and contains the pertinent facts about the policy owner, the insurance coverage, the insured, and the insurer.

policy loan

A loan that is made to a life insurance policy owner by an insurer. A policy loan is secured by a policy’s cash value and cannot exceed the cash value. When the policy benefits are paid, the amount of any outstanding policy loan made against the policy is deducted from the benefits.

policy owner

The person or party who owns an individual insurance policy. The policy owner is not necessarily the person whose life is insured.

primary beneficiary

The party or parties who have first rights to receive policy benefits when the benefits of an insurance policy become payable.

rider

An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.

stock insurance company

An insurance company that is owned by people who buy shares of the company’s stock.

term insurance

Life insurance under which the benefit is payable only if the insured dies during a specified period.

underwriting

The process of assessing and classifying the potential degree of risk that a proposed insured represents.

universal life insurance

A type of permanent life insurance with an investment saving vehicle.

waiver of premium for disability (WP) benefit

A rider or a policy provision under which the insurer promises to give up its right to collect the policy’s premium if the policy owner becomes unable to work because of an accident or injury. The waiver of premium for disability benefit remains in effect as long as the policy owner is disabled.

whole life insurance

Life insurance that remains in force during the insured’s entire lifetime, provided premiums are paid as specified in the policy.

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HAVE MORE QUESTIONS?

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