With term life insurance in place, there’s a safety net that can provide funds for paying a mortgage, sending kids through college or other important concerns if you were no longer around.
Term life insurance is a contract between a policyholder and an insurance company that says if the insured person passes away within the time period of the policy, the insurer will pay a death benefit to the beneficiaries named on the policy.
If you’re buying term life insurance, you have two main decisions to make: the length of the term and the coverage amount.
A term life insurance policy’s annual costs remain the same every year for the level term period, such as 10 or 20 years. Once the level term period is over, you can generally renew the policy, but at higher rates each year you renew.
The policy expires if you outlive the length of the policy without renewing. You receive none of the premiums paid into the policy unless you bought a return of premium term life insurance policy.
Many people buy term life insurance for income replacement. They’re looking for life insurance that will provide funds for a family to pay expenses for a certain number of years if they were no longer there to work and earn money. Term life is good for:
If the insured person dies while coverage is in force, the beneficiaries receive the policy’s death benefit. If the insured person lives longer than the policy’s term and doesn’t renew it, the coverage ends.
You may be able to convert the term life policy to a permanent life policy, such as a whole life or universal life insurance. This is a useful tactic if you realize you want longer life insurance coverage and don’t want to shop for a new policy, perhaps because your current health would make it difficult.
Let's take a look at the benefits:
A level term life insurance policy maintains the same premiums and death benefit throughout the term. Rates won’t increase as you age and the death benefit is consistent whether you die in the first or final year of the policy.
A level term life policy could be good for someone who wants consistency for many years.
An annual renewable term policy’s premiums increase each year you renew it. When you choose this policy, you’re guaranteed to keep coverage and don’t need to reapply.
It may be good for people who want to fill a short gap in life insurance. However, a short level term life policy may be a better choice.
A decreasing term life insurance policy’s premiums stay the same over the length of the policy but the death benefit decreases steadily over time.
Mortgage life insurance is a form of decreasing term life. Here the payout is tied to the declining balance of your mortgage, and the beneficiary is the mortgage lender, not your family.
Regular term life insurance is a better bet because your family receives the payout and can use it for any expenses they choose.
A return of premium term life policy promises to refund the premiums you paid if you outlive the policy. As you can imagine, the refund feature makes the policy more expensive.
Return of premium term life is available from companies such as Cincinnati Life, State Farm Life and Vantis Life.
The term life insurance coverage amount and term length affect your premiums. Other factors in life insurance quotes include:
A good term life insurance amount is generally one that matches the debts or obligations you want to cover. Life insurance is often intended to pay a family’s expenses that would have been paid by the person’s salary.
If income replacement is your goal, you’ll want to know the approximate amount your family would need to maintain your standard of living for the time period you want to cover.
To choose the best duration for a term life insurance policy, consider the length of the debt or situation you want to cover. For example, if you’re buying term life to cover the years until your children are through college, and that’s in nine years, you might pick 10-year term life insurance. If you just bought a house and took on a 30-year mortgage, you’re likely looking at 30-year term life.
Term life insurance is typically available in lengths of 5, 10, 15, 20, 25 and 30 years. Some companies offer longer terms of 35 and 40 years (such as Banner Life and Protective).
If your family’s financial needs stretch past the typical term life lengths, consider a permanent life insurance policy, such as universal life insurance.
When your initial level term period ends (such as at the end of 10, 20 years or 30 years), you can renew the policy at a higher rate each year. You won’t receive a refund for your premiums paid (unless you purchased “return of premium” term life insurance).
It’s a good idea to get quotes for a new policy before you pay the higher renewal rate. Even though you’re older and may be less healthy, you could still find a better deal in a new policy.
Some folks decide they no longer need life insurance before they reach the end of the term and stop making payments. Before you go this route, make sure you truly no longer have the need for life insurance. If you end a policy and your life circumstances change later, you could regret not having kept the policy.
It’s a good idea to compare life insurance quotes to start your life insurance shopping journey. You may be tempted to focus solely on cost when you’re choosing an insurer. But the best term life insurance companies will offer benefits that give flexibility at a good price.
Coverage features to look for include:
When you have a quote that you like and are ready to buy a policy, you’ll fill out an application. The life insurance agent will likely go over your application answers. You may be asked to sign releases, such as one for your medical records.
Once the application goes to the insurance company, you may be asked to do a life insurance medical exam. This often includes height, weight, blood pressure, blood and urine samples, and questions about your prescriptions and health to verify the information on the application.
Depending on your age and/or amount of insurance requested, a life insurer might also request an EKG or cognitive assessment.
Behind the scenes, the life insurance company will be doing its own research on you. This often includes:
Get a deeper understanding of how your money is performing and create a roadmap to realize your dreams.
NSE MEMBER CODE: MFS137761
BSE MEMBER CODE : 61671
Euin : E232893
ARN : 137761