Protect What You Love: National Life Insurance Day 2025
By Michael Giusti
May 2nd is celebrated annually as National Life Insurance Day, commemorating anniversary of the first life insurance policy being written in the U.S. in the 18th century. On this National Life Insurance Day, it is worth examining all the varied ways life insurance can be used to safeguard a sound financial future, from helping to protect young families from financial ruin to shepherding savings through retirement to helping pass inheritance on to the next generation.
More than half of U.S. adults have some kind of life insurance plan protecting them.
The popularity of life insurance was renewed by the COVID-19 pandemic, and analysts expect interest to stay relatively stable in the coming years.
Although the number of life insurance policies in force has declined generally over the past 10 years, the value of the policies in effect has remained high, indicating the typical policy’s face value has grown over the years. In 2024, insurers wrote $16.2 billion in premiums – a record for the fourth consecutive year.
At its core, life insurance is a bet that someone will live a long life. Most life insurance policies protect against any kind of death, be it an accident, an illness, or old age. Some policies will even protect against suicide – if the policy is in effect long enough before the death (two years in general, one year in some states).
There are also some specialized life insurance policies, such as accidental death and dismemberment, which only pay for deaths that aren’t due to illness or old age. Another specialized plan, known as pre-need insurance, pays for funeral expenses with one lump-sum up-front premium payment.
Life insurance policies come in two main forms – term and permanent. And permanent policies come in three other sub-forms – whole, universal, and variable.
Permanent vs. term
The difference between a permanent life insurance policy and a term policy is about like the difference between buying a car and leasing one.
Term policies are written for pre-determined set timeframes – typically between 10 and 30 years. And just like at the end of a lease where a driver needs to return the car to the dealership, once a term policy runs its course, the contract expires. If the policyholder is still alive at the end of the contract, they’ll need to renew and purchase an updated policy.
Life Insurance policies purchased as a benefit from an employer are typically term policies. Policies bought at work only stay in effect as long as the employee stays at the company – and sometimes only until they hit a set age limit. Once they age out or leave their employer, that group life insurance policy expires.
Some term policies offer a conversion option, where the policyholder can convert the term policy into a permanent policy at the end of the term, though that results in a huge jump in premiums.
The main advantage of a term policy is its cost. Policyholders can buy very large policies for very small monthly payments when compared with permanent policies.
Unlike term policies, permanent policies don’t expire — as long as premiums are paid. Permanent policies generally take the form of whole, variable, or universal life. And while their monthly premiums are many times more expensive than a term policy, the premiums for a permanent policy are set for life and generally never rise.
If a permanent policy is purchased while the policyholder is young and healthy, they will get the best premiums because the policyholder has the longest amount of time to pay for that coverage. The later in life someone buys it, especially as they develop health concerns, the higher the premium is going to be.
Another defining difference between permanent policies and term policies is the policy’s cash value.
A portion of the higher premiums for the permanent policy pays for the coverage – just like a term policy, but then the excess premium is invested in a savings account (in the case of whole life), or in stocks, bonds, or money market funds (in the case of universal and variable life.)
That cash value grows over time and helps subsidize the monthly coverage as the policyholder gets older. As the policyholder gets older, the cash value builds up to help offset the eventual death benefit.
For variable and universal policies, rising and falling financial markets affect the cash value, and in bear markets can weigh heavily on the policy’s cash value.
Whole life policies are primarily affected by interest rates, with lower rate environments making their cash value grow more slowly.
Since there is a cash value for the policy, one way people use permanent life insurance is they borrow against it. Loans from an insurance policy generally aren’t taxed as income, though they do have to be repaid or else the borrowed amount is subtracted from the final death benefit.
With some permanent policies, policyholders can also work with the insurer to skip or reduce premium payments in times of financial hardship, allowing the cash value of the policy to draw down and pay the premium instead, though again, that would reduce the eventual death benefit. And if there isn’t enough cash value to make a premium payment, the policy can lapse.
Who needs it?
The rule of thumb of who needs life insurance starts with a young family. The general advice is that young families should have enough life insurance to replace the income of a breadwinner who might die prematurely. Young families — especially ones with children or with one breadwinner who earns a substantial portion of the family income – tend to be the best audience for the “replace your income” sales pitch.
Term policies tend to be the best option here. With their low premium and high death benefit, this is a place where families that are just launching financially can find some affordable protection.
Later in life, life insurance can become a valuable retirement planning tool to help shelter income from taxes, as well as an estate planning tool.
This is where the permanent — whole, variable, and universal life — policies tend to come in.
The catch with the young family vs. older financial planning tool argument is that the longer someone waits to buy a policy, the higher their premium will be because age, and the inevitable health concerns begin to become a significant cost driver for premiums.
As an estate planning tool, the life insurance can be attractive because insurance proceeds generally pass on to the survivors tax free. And if the beneficiary is named in the policy, the proceeds can generally also be distributed outside of any probate process.
As a retirement planning tool, the cash value of the policy grows income tax free, so policyholders who have hit their contribution limits on 401(k)s and IRAs can sometimes find life insurance to be another place to shelter savings. And some financial planners encourage retirees to borrow against life insurance policies rather than take draws against their stocks and bonds in years the market is in a downturn, thus avoiding selling those assets when the market is down.
Insuring to launch
One area where life insurance is finding a receptive audience is with families working to help their teenagers and 20-somethings launch their lives financially.
Term life insurance policies can be good tools to protect family members who might lend the younger generation money to help launch their lives. That money might be to pay for college, or even because the parent co-signs on private student loans that wouldn’t be discharged if the student died prematurely. It’s worth noting here that federal loans don’t have to be repaid if the borrower dies.)
The lent money could also be to help with a down payment on a house or a car or to launch a business. The bottom line is that if a parent lends their child money with the expectation that it gets paid back, then an inexpensive term life insurance policy would protect the parents in case the child dies before paying that money back.
Term policies work best here and can cost less than $150 per year depending on how much coverage was taken out. One of the benefits to this strategy is that teenagers and people in their early 20s will generally qualify for the lowest premiums, making this very affordable protection.
Nuts and bolts
How much life insurance costs varies according to the amount of coverage being purchased, the age of the policyholder, any health factors they may be dealing with, and their gender.
Healthy 30-year-olds can generally get a $250,000 term policy for less than $175 per year. While a 70-year-old man looking for a $1 million term policy would expect to pay nearly $20,000 a year in annual premiums.
Permanent policies are much more expensive. That 30-year-old buying a $250,000 whole life policy would expect to pay more than $2,000 per year, and the cost goes up from there with older buyers and larger policies.
To qualify for a life insurance policy, policyholders generally have to answer a lengthy questionnaire asking about details of their health and their lives and then sit for a medical exam conducted by a nurse, which would involve things like body mass index, swabbing cheeks to check for tobacco traces, blood pressure checks, and bloodwork to check cholesterol and blood sugar, among other things.
Policies that don’t require a medical exam are available, though they are more costly than ones that include the medical exam and sometimes offer a smaller death benefit. And even the no-exam policies tend to have extensive medical questionnaires.
Many insurers are relying on publicly available data sets and artificial intelligence to help streamline the underwriting process, but for many insurers the process is still a lengthy, hands-on process.
Honesty is key when applying for life insurance, even if that honest response leads to a higher premium. Lying on the medical portion of the application is a crime, and if the insurer finds out, the policy can be canceled if the policyholder dies within a certain timeframe.
Other factors that can weigh in on how much you pay can include things that imply risky behavior, such as whether the policyholder smokes, has a bad driving record or if the policyholder participates in risky hobbies, such as scuba diving. Criminal records can also play in to higher premiums, and sometimes credit risks, bankruptcies, and shaky finances can lead to higher premiums.
If someone has a life insurance policy and chooses to move abroad, it is important to communicate those plans with the insurer.
For many policies, where the policyholder lives doesn’t matter. But other policies have geographic restrictions on the coverage, with some locations deemed riskier, leading to a reduced death benefit, or even canceling the policy. For other policies, the only things that go into figuring the premium is age, health, and gender, meaning living abroad is covered just the same as living in the United States. The key is to communicate with the insurer before making major life changes.
Final thoughts
For people in the market for life insurance, some good habits go a long way. First, buyers should shop around with many insurers. This is where a licensed broker can come in, who would have access to many different companies and can compare who might offer the best rate.
Policyholders also need to closely evaluate their needs. Do they need to protect their family from a lost income? Are there dependents who would need long-term care of if the breadwinner were to die? Is the policyholder dealing with later-in-life issues, such as sheltering income for retirement, or planning an estate?
Each of these needs calls for a different life insurance strategy.
Moving forward, the life insurance industry is going to continue to push more emphasis on automated and electronic underwriting to help minimize the amount of paperwork and exam process to hopefully get coverage decisions and premiums back much faster.
And while many policies are still written by human agents, there is a growing push to make life insurance shopping more available online or through an app, rather than just through a face-to-face sales call.
As a rule, people interested in life insurance should buy the policy while they are young and healthy. If they missed that window, then the next best time to buy is now, because the premiums won’t generally go down with age.
Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com
