Term Life Insurance. What is it and how does it work?
To put it simply, term life insurance is life insurance coverage that is purchased for a period of time, typically between 10 and 30 years, and if you pass during that time a cash benefit is paid out to your beneficiary.
Term life insurance is usually cheaper than permanent policies and most are “level premium”, which means that your monthly premium stays the same for the entire term of the policy. However, unlike permanent policies, term policies have no cash value, no payout once the policy expires, and no value other than a death benefit.
When it comes to term life insurance there are a few key considerations to keep in mind:
- Term Length. One of the bigger considerations for term life insurance is how long you need coverage. Typical policies range from 10 years to 30 years and usually the longer the policy term, the more you will pay for a given coverage amount. Think about your debt, how long do you plan to have that debt for? Do you want it to be paid with your life insurance if you pass? Do you have kids and are you hoping to maintain coverage until they are grown? Consider your individual needs.
- Convertibility. Can you convert the policy into a permanent policy later on if you want? What does that process look like? These are questions you should address with your insurance agent if convertibility is important.
- Death Benefit. How much coverage do you need? This depends on your individual life and what you want your death benefit to pay for. If you were to pass tomorrow, could your loved ones afford to pay off the rest of your home, car, or other debts? How much will your funeral expenses be? Do you want to leave anything behind for your loved ones after everything is taken care of? All of these questions can help you determine how much coverage you really need.
- Beneficiaries. Who will receive your death benefit in the event that you pass before the policy expires? Most commonly this is a spouse, parent, or adult child. It doesn’t have to all go to one person either, you can split your benefit between different parties or leave it to a trust.
When shopping around for term life insurance policies you will notice there are several different types available, these include:
- Level Premium. This type of term life insurance, also known as the level term, is the simplest and most common type of policy. With this policy, your premium will remain the same for the entire term.
- Return Of Premium. This type of term life insurance is unique in the fact that if you do not pass during the term, you get some or all of your premiums back. With this type of policy, your premiums are typically slightly higher than a level-term policy.
- Guaranteed Issue. This type of term life insurance doesn’t require a medical exam and only asks a few simple health questions, however that also means that your premiums may be higher with this type of policy because the insurance company can’t accurately determine your risk level.
The best way to make sure you have coverage that best suits your unique needs and budget is to speak with an independent insurance agent. To discuss your life insurance options, give us a call at 844-GANNONS and get the conversation started today!