Life insurance

What life insurance is for, and how the amount gets decided

Life insurance pays a sum to the people you name if you die while the policy is in force. It is normally used to replace household income, pay off a mortgage, clear outstanding debts and cover final expenses. How much a family needs is not a formula: it depends on who relies on that income and what is still owed.

Why the question is hard to answer in general

Most pages about life insurance answer the amount question with a multiple of annual income. It is a memorable number and it is not how the calculation works. Two households with identical incomes can need very different amounts, because what matters is not what you earn but who depends on it, for how long, and what is still owed when the income stops. The multiplier survives because it is easy to publish, not because it is accurate.

What a life insurance policy pays for

The money is paid to the beneficiaries you name and is theirs to use. In practice it tends to go to four things.

Replacing household income

The largest of the four for most families. The question is how many years of income the household would need to absorb, which depends on the ages of the people who depend on it and on whether there is a second income.

The balance left on a mortgage

What is still owed on the property, so the household is not deciding whether to keep it under pressure. Note this is a separate question from insuring the property itself, which is what the policy on the property does.

Outstanding debts

Anything that does not disappear: car loans, personal loans, business obligations that were personally guaranteed. Which of these survive depends on how each one was signed. TODO(copy-compliance): the treatment of specific debt types varies and is not stated generally here.

Final expenses

Funeral and burial costs, and the administrative costs of settling an estate. It is the smallest line of the four and the one most often left out of the estimate, which is why it is worth naming.

What decides how much coverage a family needs

There is no single multiplier that answers this. The amount comes out of four questions, and they are answered about a particular household rather than in general.

Who depends on the income, and for how long

A household with young children needs the income replaced for longer than one where the children have finished studying. If the household income comes from a business you own, the question extends to what happens to the business itself, which is a separate conversation.

What is still owed

The mortgage balance and any other debt that would remain. This is the part of the calculation that changes most over time, and it is the reason a policy sized correctly ten years ago may not be sized correctly now.

What you want the money to do afterwards

Replacing income and clearing debt is the floor. Beyond that, some households want to cover future education costs or leave the property unencumbered. These are decisions, not requirements, and they are what makes the number personal.

What is already in place

Coverage through an employer, existing policies, savings, and what a surviving partner would earn. The amount to buy is the gap between what the household would need and what it already has. This is also where it is worth checking what the rest of the picture looks like, including liability above your policy limits.

What life insurance does not do

Three things a life insurance policy is regularly expected to do and does not.

It is not a savings account you can draw on

A term policy builds no value and pays nothing if it expires while you are alive. Some permanent policies do accumulate value, under conditions that vary by contract. TODO(copy-compliance): the conditions under which a permanent policy accumulates or allows access to value are contract-specific and are not described generally here.

It does not cover what you owe on things you keep

The payout is a sum of money, not a settlement of specific debts. The beneficiaries decide what to pay and in what order. Nothing is directed automatically unless a separate arrangement says so.

It does not stay in force if it lapses

A policy only pays while it is in force. Missing payments past the grace period ends it, and reinstating it later is not automatic and may require answering health questions again. The grace period is set by Florida law and appears below.

A separate subject

Where annuities fit, and why they are a separate subject

This page covers two products because the agency places both, not because they are versions of each other. They are bought at different points in life for different reasons, and they are treated differently by Florida regulation. If you came here about life insurance, everything above is the answer and this section is not.

Life insurance: Answers: if my income stops because I die, what happens to the people who depend on it? It pays other people, after.
Annuity: Answers: how do I turn savings into income once I stop working? It pays you, while you are alive.

What an annuity is

A contract with an insurance company in which you place a sum, or a series of payments, and the company agrees to pay income back to you under terms set out in the contract. There are several kinds and they differ substantially in how that income is calculated. TODO(copy-compliance): the types of annuity and their mechanics are not described here pending compliance review.

What question it answers

It belongs to a retirement income conversation, not a protection one. The question behind it is what a household lives on after employment income stops, which is a different subject from what happens to dependants if it stops unexpectedly.

What to ask before considering one

Whether the money placed remains accessible and under what conditions; what charges apply and when; what happens to the contract on death; how the income is calculated and what can change it; and how it is treated for tax. These are the questions to bring to a licensed professional who can review your particular situation.

What this page does not tell you

Nothing on this page states or implies that an annuity is suitable for you, and nothing here describes returns, rates, guarantees or tax treatment. Annuities are financial products and Florida regulates their sale above ordinary insurance, including a specific suitability standard. Suitability is determined for a particular person by a licensed professional, and it is not something a website can assess. TODO(copy-compliance): this disclaimer requires compliance review before publication.

Timelines Florida sets in writing

The amount of coverage a household needs cannot be published, because it depends on the household. What can be stated are the periods Florida fixes by law, which apply to every policy sold in the state and which almost nobody explains before you sign.

Free look period on a life policy: [XX]Florida Statutes / Florida OIR
Contestability period on a life policy: [XX]Florida Statutes
Grace period for a missed premium: [XX]Florida Statutes
Free look period on an annuity contract: [XX]Florida Statutes / Florida OIR

TODO(copy-compliance): the four periods above are set by Florida law and are shown in brackets until the agency confirms them against Florida Statutes and the Florida Office of Insurance Regulation. Nothing here is published from memory.

Questions from families in Miami

What is the difference between life insurance and an annuity?: They answer opposite questions. Life insurance pays other people after you die, and exists so that a household does not lose an income it depends on. An annuity pays you while you are alive, and exists to turn savings into income after you stop working. One is protection, the other is retirement income planning. They are sold by the same kind of licensed professional, which is the only reason they are discussed together at all.
Can I buy life insurance in Florida if I am not a US resident?: It is possible in some circumstances and it depends on the insurer rather than on a single rule. Carriers set their own requirements around residency, immigration status, where the medical exam takes place and what connection you have to the United States, and those requirements differ substantially between companies. TODO(copy-compliance): specific carrier requirements are not listed here and have to be confirmed case by case.
What happens to the policy if I stop paying?: Missing a premium does not end the policy immediately. Florida sets a grace period during which the policy stays in force and the payment can still be made; the length appears in the table above. After that the policy lapses and stops paying. Reinstating it is not automatic and can involve answering health questions again, which is why a lapse matters more than a late payment on most other kinds of policy.
Does the policy pay if the death happened outside the United States?: Usually yes, but the contract governs and some policies exclude specific countries or circumstances. It is a real question for a household that spends part of the year elsewhere, and it is worth asking before signing rather than assuming either way. TODO(copy-compliance): exclusions are contract-specific and are not summarised here.
I already have coverage through work. Is that enough?: It is a starting point rather than an answer. Employer coverage is usually tied to the job, so it ends when the job does, and the amount is set by the employer rather than by your household's needs. The useful exercise is to work out what the household would need and subtract what is already in place. Sometimes the gap is small.

Working out the amount takes a conversation about your particular household, not a calculator. Romina Saaied can go through it with you in English, Spanish, Italian or Portuguese.

Work out the number for your household

Tell us who depends on the income and what is still owed, and Romina Saaied will go through the calculation with you. You do not need documents to start.