Are you an Alabama resident who’s looking to financially protect your family’s future? Then you need a life insurance policy! But as you start your search for the right policy for you, there are a few things to think about before purchasing an Alabama life insurance policy. Policyholders in Alabama are subject to the same laws as those in any other state, and you should learn as much as possible about those laws. As well as what to expect from the life insurance market in Alabama before you buy a policy here. Read our guide below, then speak to an EZ agent, who can help you find the right policy for you.
How Life Insurance Works in Alabama
Simply put, life insurance is a contract between you and an insurance company. In which you agree to pay the insurance provider money on a regular basis (the premium) in exchange for a payout upon your death. This payout, a death benefit, will be paid to a beneficiary of your choosing.
Those who have dependents, who are responsible for another person’s care financially, or who have debts that will have to be settled after death can all benefit from purchasing life insurance. If you are the sole breadwinner in your family, life insurance can help ensure that they are taken care of financially. The payment that your loved ones will get can be used to settle long-term debts like a mortgage or student loans. It can also be put toward future needs like covering the cost of your kids’ college tuition. Or it can be used to replace your income and cover your spouse’s living costs.
Types of Alabama Life Insurance
Life insurance comes in a wide variety of forms. Making it possible to meet the needs and preferences of virtually anyone. The first decision you’ll have to make is which of the two main types of life insurance to purchase:
- Term life insurance
- Permanent life insurance
This decision will depend heavily on your specific needs, especially whether those needs are short-term or long-term.
Term life insurance is the most common type of policy purchased because it’s usually the cheapest. This is because these policies expire: with term life insurance, you choose how long you want coverage for. Most policies have terms of 10, 15, 20, 25, or 30 years. Your premium will generally stay the same for the entirety of the term you choose. If you die during the policy’s term, your beneficiaries can file a claim for the death benefit and get the money without having to pay taxes on it.
There are several types of term life policies:
Level Term Insurance
With level term life insurance, both the death benefit and premiums are set at the time the policy is bought. And they do not change at any time during the policy’s term. Level term life insurance is the most common and popular type of term life insurance.
Annual Renewable Term Life Insurance
Annual renewable life insurance is a type of term life insurance that lasts for one year. You can renew your policy every year, but the cost will go up as you get older.
Increasing Term Life Insurance
Your increasing term life insurance policy will give you a death benefit that will get more valuable over time. This will happen at regular intervals. For example, your benefit amount might go up by 5% every year. Variable term life insurance costs more than level term, and there’s a chance that the premiums will change over time.
Decreasing Term Life Insurance
A decreasing term life insurance policy has a death benefit that goes down over the policy’s coverage period. While the premium stays the same. With decreasing term life insurance, the coverage usually lasts for the length of a loan, like a mortgage. But the benefit amount slowly goes down as the loan balance is paid off.
Return-of-premium (ROP) insurance gives you back your premium payments if you die before your coverage ends. The return of premiums is an attractive feature. However, you should be aware that ROP policies are much more expensive than other types of term life insurance.
Permanent Life Insurance
Unlike with term life insurance, permanent life insurance remains in effect for the entirety of your life. Provided that you maintain the premiums. It is generally more costly than term life insurance, not only for this reason, but also because permanent life policies often include a cash value component. Which is similar to a savings account that accrues interest.
There are several types of permanent life insurance policies:
Whole life insurance offers a guaranteed death benefit and set premiums. It not only pays out a benefit to your beneficiaries when you die. But it also has a savings feature that allows a cash value to build up. Your cash value will earn interest at a set rate, and you will not have to pay tax on the money in it.
Universal life insurance is one of the most flexible types of permanent life insurance. With this type of policy, you will be able to change both the amount of your premiums and the amount of your death benefit. Once you have enough cash value built up, you will be able to pay your premiums with it. Additionally, if you want lower premiums you can choose to lower your death benefit amount.
Indexed Universal Life Insurance
Indexed universal life (IUL) insurance also has a cash value component. But it works differently from other types of permanent life. Instead of only growing based on non-equity earned rates, IUL’s cash value can also grow based on a stock index. Which is a predetermined grouping of different stocks. IUL gives you the same flexibility as universal life to change your premium as your cash value grows. It also has the potential to become a zero-cost policy. Meaning all of your premiums can be paid for by the cash value you have accumulated.
Variable Universal Life Insurance
Variable universal life (VUL) is another type of permanent life insurance policy that has a built-in savings feature and allows the cash value to be invested. VUL comes with investment subaccounts that can be used to put the cash value to work. The way the subaccounts work is similar to how a mutual fund works. Meaning changes in the market can give you the chance to make a lot of money, but you also run the risk of losing money. Just like with standard universal life insurance, the premiums for VUL can be changed as your cash value accumulates.
Final expense insurance is a type of whole life insurance that is easy to get and gives a small payout to your beneficiaries in the event of your death. It is also called funeral insurance, burial insurance, simplified issue whole life insurance, and modified whole life insurance. But all of these names simply refer to whole life insurance policies with death benefits between $2,000 and $35,000. The death benefit of final expense insurance is meant to pay for things like a funeral or memorial service, embalming, and a casket or cremation. Beneficiaries, though, can use the money from the death benefit for anything they want. Like a vacation or paying off debts.
Alabama Life Insurance Laws
To a large extent, the federal government allows each state to regulate their insurance industries, and charges them with protecting consumers in regard to life insurance policies. That means life insurance is regulated by the state of Alabama. Which helps to keep you safe when purchasing a policy. Although other legal provisions have also been adopted as consumer protection laws, Title 27 of the Alabama Code is the primary regulatory force behind the insurance industry within the state of Alabama.
According to Alabama’s Title 27, you (and your insurance company) have the following rights when it comes to your life insurance policy:
Free Look Period
The “free look” period granted to you is essentially a trial run. It gives you the opportunity to return your coverage and get a complete refund of any and all premiums paid for it in the event that you change your mind about your policy, which will be very helpful in the case that you find a more attractive policy after you enroll.
In Alabama, this period is 10 days long. As long as you’re within your 10 day free look period, you can get a refund of your initial payment. Additionally, if you pass away during the free look period, your beneficiaries will still be eligible to receive a death benefit. With that being said, after the 10 days your premiums will not be refundable under any circumstances.
In Alabama, insurance companies are required to give you a grace period if your premium payment is late. Because of this grace period, a life insurance policy in Alabama cannot be terminated if the premium payment is made less than a few weeks late. In Alabama, the grace period is thirty days, which means you have a whole month to make up your late payment, during which your insurance provider is prevented from canceling the policy or denying you coverage.
In the event that your life insurance company goes out of business, you or your beneficiaries will still be able to recoup at least some of the death benefit associated with your policy. To get your money back, you or your beneficiaries can work with the Alabama Life and Disability Insurance Guaranty Association, which provides support for all active insurance policies, including life insurance policies. To get your money back, you must be current on the payment of your premiums, and the insurance company must have the appropriate licensing to conduct business in Alabama. But this association will only pay up to a maximum of $300,000 in death benefits, no matter how much you were insured for. Additionally, it will only pay a maximum of $100,000 per individual for lost cash value.
The contestability clause gives your insurance company the right to reopen your entire application and examine it for any errors that may have been made during the underwriting process. For example, if you die within the first two years of owning the policy, your insurer can reevaluate your policy to find out if you knew about the condition you passed away from and didn’t tell them.
This contestability period is only open for the first 2 years of your policy, though. If you pass away after the 2-year mark, your insurer will no longer be able to contest or withhold death benefit payments while they investigate your application. But it’s important to note that the best thing to do is always be honest on your application. You don’t want to risk your family being denied their benefits when this can be avoided altogether by finding a policy you can afford that covers you, no matter your health.
Alabama life insurance companies are required to settle the payment for a death benefit claim within 30 days of receiving proof of death documents from the policyholder’s estate. If the insurer is unable to make the payment within this time, they will be responsible for paying interest on the balance that is still outstanding.
The cost of your life insurance premiums will vary greatly depending on your health, age, and even gender. The best way to find out how much you can expect to pay for a policy, contact one of our EZ agents. They can use your information to find you free quotes tailored specifically to you.
But, to give you an example of prices, a 25-year-old healthy man who doesn’t smoke could pay between $15 and $42 a month for a 20-year $253,000 policy in Alabama.
Alabama Life Insurance Resources
In Alabama, there are several state and federal resources available to help you if you have any problems with your insurer or policy. These resources include:
- Alabama Department of Insurance (ADOI) – The Alabama Department of Insurance (ADOI) is the state agency in charge of life insurance. And is responsible for handling consumer complaints and providing consumers with free information about life insurance.
- Alabama Life & Disability Insurance Guaranty Association – In order to legally sell policies in Alabama, every life insurance company is required to become a member of this association. In the event that any of the member companies experiences financial difficulties, the association will protect your interests and make certain that you will continue to be paid for any claims that you file, up to the limits that have been established.
- Alabama Office of the Attorney General – In the event that your personal information is compromised due to a breach in your life insurance policy’s data, the Office of the Alabama Attorney General is here to help you. Complaints regarding companies that violate consumer protection laws can also be filed through this office.
Does Alabama require life insurance?
No, life insurance is completely optional no matter what state you’re in.
What are the best life insurance companies in Alabama?
There are many great options for life insurance in Alabama. The top being Bannerlife, Brighthouse financial, Massmutal, Prudential, Lincoln Financial.
How much does life insurance cost in Alabama?
There are many things that factor into your costs but to give you an example: a 35-year-old healthy woman in Alabama will pay an average of $25.76 per month for a 20 year term policy with coverage of $500,000. On the other hand a healthy 35-year-old man will pay around $30.79 for the same policy.
EZ Can Help!
Everyone has a unique set of needs, priorities, and constraints on their financial resources. We at EZ are aware that you are trying to find the best possible financial security for you and your loved ones without having to empty your savings account. We will do everything we can to make buying life insurance as uncomplicated as possible for you. And we’ll do everything for you for free! You won’t have to pay anything extra to receive assistance with whatever you need. From getting answers to your most fundamental questions to navigating policy selection to the enrollment process and beyond. To get started, simply enter your zip code in the bar below or give us a call at 877-670-356.