Life Insurance: Everything You Need to Know
If you have anyone depending on you financially, it’s a good idea to have life insurance. Policy payouts can help cover debts, pay for funeral arrangements, and even replace the income that was supporting your loved ones. Luckily, getting life insurance in the United States works pretty similarly to the process in many countries: you choose a policy based on your needs, identify your beneficiaries, and pay a monthly premium.
When choosing a policy, it’s important to understand not only the amount of coverage you want but also the type. There are many types of life insurance in the US, but they fall under two categories: term and permanent.
Term Life Insurance
Term life insurance will pay your beneficiaries the benefit amount in the event that the policyholder dies within a specified amount of time — usually between 5 and 20 years. While these policies are usually less expensive than permanent policies, they are also a bit risky: if you outlive your policy, your beneficiaries get nothing. You can often renew your policy, but as premiums are based in part on age, it will likely be much more expensive than when you initially signed up.
Term policies are therefore best for covering yourself until a defined point: your spouse will have other support, your kids are off to college, or your mortgage is paid off.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance policies last as long as the policyholder lives. Another important difference between the two is that payments towards permanent life insurance premiums not only contribute to the eventual death benefits but also provide a powerful savings and investment tool. This is because, after an initial waiting period, premiums you have paid toward your policy will begin to accrue interest - essentially growing in cash value over time. What’s more, after a waiting period, you can actually take out loans from your policy, and this money will be tax-free. Of course, all this comes at a cost: permanent policies are usually much more expensive than term policies.
Permanent policies are best for individuals who are looking for lifetime coverage that won’t change in cost and can provide savings and investment benefits.
Life Insurance Requirements for Non-Citizens
You do not have to be a citizen or even a permanent resident to take out a life insurance policy in the US. However, there are a few considerations to think about when starting the process:
- Your country of citizenship allows you to take out a US life insurance policy.
- The company you are applying to covers individuals from your country of citizenship.
- You are able to present in the US for the entire process, usually 4-6 weeks.
- You can verify ties to the US. For example, you are employed by a US company, have a US bank account, or have an immediate family member in the US.
How to Get Life Insurance
- Shop for a policy. The two main factors that will determine the cost of your policy are your age and overall health. The younger you are, the cheaper your policy. If shopping on your own, look for companies that have strong financial ratings by organizations like Standard & Poor, such as Lincoln Financial, Pacific Life, and Prudential. Alternatively, you can work with an insurance broker who can help you find the right policy but will take a commission.
- Submit your application. Be prepared to answer a lot of questions. These will likely be about your habits and medical history. In fact, if you have no medical history in the US, the provider may ask you to send in your records from your home country. Additionally, many providers will require you to undergo a medical exam.
- Once approved, sign the paperwork and set up payments through a US bank account. Remember always to pay your premiums or your policy will lapse!