What is term life insurance? You’ll want to consider purchasing some life insurance because it guards you against leaving your family with nothing if you pass away in an untimely accident or situation. In addition, it offers financial well-being to your family if they need it. Let’s learn the basics.
What Is Term Life Insurance Policy?
Term Life Insurance is a form of life insurance, but it has a specific end date. For example, your policy might expire 20 years from its starting date.
The benefit money will only pay out if you, the policyholder, pass away during that selected term. This benefit is called a death benefit and refers to the money paid to your beneficiary when you die.
Level Term policies are a common form of the death benefit. The value of that death benefit remains the same for the duration of your active policy. However, your benefit may also decrease and shrink with time, usually in 1-year intervals.
When the term closes, some term insurance may be converted to permanent life without a doctor’s exam, such as universal or whole life. But, once they’ve been converted, such permanent life insurance policies will cost more.
As per the NAIC, you may also choose a policy with a Return of Premium inclusion. So, if a death benefit isn’t paid when you reach your policy’s end, you get back part of or all the premiums you’ve paid. But such policies can be expensive.
Term Life insurance is something you may buy individually. Or you may do a group life insurance plan using a religious, civic, or employer organization.
What Is Term Life Insurance: Whole Life and Term Life
Let’s compare the two types of policies and see the differences and similarities to help you make a buying decision. Both types can offer financial benefits should the policyholder die unexpectedly.
Term Life
Usually less expensive than permanent life
You may convert it to a whole life insurance policy
Keep in mind the policies are temporary
Health issues and one’s age can make it hard to renew the policies
The policies have zero cash value
Whole Life
Your policy may last until you die
Such a policy can offer guaranteed cash value
The death benefits are usually lesser than the cost
These policies are more expensive than term life
Like whole life, a universal life insurance policy goes under the umbrella of “permanent life insurance.” But the cutoff ages for such policies usually begin at 95 and end at 100 years.
So, while some of you will meet and possibly exceed these cutoff ages, you get greater longevity than you would with term life.
You may build up a cash value through tax-deferred interest using a universal policy, and you don’t get that option using term life. Tax-deferred interest will mean you needn’t pay taxes on such earnings until money is taken from the policy.
But what makes universal life policies unique is that you have to change your coverage and premiums. So, if you lost employment and needed to trim your expenses, you’d be free to do that without fear of losing your policy. Term life doesn’t provide this benefit.
What Is Term Life Insurance: How Much Is It?
Says the Texas DoI, the price you’ll pay for your term life will depend on your risk factors, age, and health.
You’ll also need to factor in the death benefit value and any add-ons you’ve chosen. If you’re a group policy, the cost is based on factors for that group, not just yourself.
The greater the death benefit, the more expensive your term life is. Men usually pay more than women for term life insurance.
The overall costs of term life might be lesser than you were expecting. However, most Americans think life insurance is about three times higher than you genuinely pay, so get a quote and decide if it’s right for you.
What Is Term Life Insurance: How Much Do You Need?
Because you get more for your buck with term life insurance, you may find it easier to procure a death benefit with a policy you can afford.
That doesn’t mean you need more coverage for the circumstance. The coverage you’ll need is dependent on many factors.
Here are some to consider:
- Your desire for risk
- Living Standard
- Cash Flow
- Outstanding Debts
- How long do you want/need coverage
- Family circumstance
- Impact of family provider passes on
- How many beneficiaries
- Family goals
You can take one of two pathways to determine your need.
The first is Needs-Analysis. You will add all expenses from the policy’s beginning date to the estimated year of death.
The second is Human Life Value, where you check out the net economic contributions you, the policyholder, will contribute to your family, subtracting consumption and taxes. This policy leaves the family a way to replace the income you once provided.
Speaking to a financial pro can help you learn how much coverage you need for your circumstance.
What Is Term Life Insurance: Is It for Me?
Term Life insurance is not a one-size approach to protecting your family. But it can be instrumental.
You could have a mortgage, trying to ensure it’s covered if you die unexpectedly. Or it could be dependent on your cash flow and the policy’s death benefit.
It’s a good alternative if you cannot afford the premium for permanent life insurance, too.
And don’t think of the temporary nature of term life as a bad thing. For instance, people without kids can offer coverage so they can pay off debts you co-signed with your parents.
Meanwhile, young people starting their families could fear future health issues that prevent them from qualifying for permanent life or render it an expense that’s too pricey to bear. For this situation, Universal or whole-life policies could be the better choice.
Term life Insurance or Personal Loan might not make sense if you are a middle-aged person that can afford a permanent life and have dependents who would be financially burdened if you passed on.
In such a case, you might find it harder to get permanent, affordable policies 20 years later when your term policy ends.
What is Term Life Insurance: How Do You Buy It?
Buying term life insurance will depend on your broker or company. It would help if you began by getting quotes for a term life policy that best suits your situation.
Once you’ve figured it out and found the policy you like, speak with that company or agent to begin applying for that policy.
You’ll submit basic information, such as an address, name, marital status, age, gender, and medical history. You’ll talk about any existing conditions you have.
You may have to undergo a medical exam. Once approved, you’re free to sign your policy docs and begin making payments on the policy.
What Is Term Life Insurance: What Riders Can You Get with Term Life?
As per the California DoI, a rider offers add-on coverage that is perfect for enhancing the policy.
Let’s review some of the most common riders:
- Guaranteed Insurability: You, the policyholder, can buy extra life insurance coverage, but you don’t need to offer evidence that you are insurable.
- Accidental Death: You get an extra benefit if the policyholder dies due to an accident.
- Accelerated Benefit: You’ll get a portion of your death benefit early on if you are confined to a nursing home or diagnosed with a terminal illness.
How long will my term life policy last?
Usually, they will last five to 30 years, offering coverage for those timespans. The policy may end if you reach a certain age, usually age 65. Should you reach the end of the policy, you could renew it, depending on age.
For instance, the insurance company might deny the request if you’re past 80 when you wish to extend your term life insurance. Or, if you choose your term would extend past 80, you could also get denied.
What is Supplemental Life?
Here, you have an additional policy you can purchase from your employer to supplement your group life policy. It’s more expensive than group life but provides extra cushioning for your coverage.
Some examples are accidental death and dismemberment, offering coverage if you accidentally die, along with funeral insurance, which covers the cost of burial.
If you wish to have specific coverage and cannot find it within the group plan, supplemental life could be what you need.
Concluding About Term Life Insurance
If you foresee a significant life change coming down the pike- marriage, childbirth, adoption- you should take it as a cue to begin shopping for your life insurance which you can avail of from FastLoanCA.
Each adult responsible for caring for a child or spouse should consider getting a life insurance policy of some sort.
It will provide your family protection and peace of mind if you die. And do it now, before you grow any older.
The life insurance companies will look more favorably upon young buyers, as they are more likely to get a competitive rate.