No doubt, life is largely unexpected. Peace of mind does not come cheap, but what can provide peace of mind for a low price is the convenience of investing in a Term Life Insurance policy.
If you have looked into life insurance before and are confused or wondering what all these phrases and definitions mean, rest assured — it’s fairly simple. In short, term life insurance policies are the quintessential life insurance policy. It’s the simplest form of life insurance.
How Does It Work?
Firstly, the whole process begins with eligibility and an application process. Insurers often determine snapshots of your current life and life history to determine how to insure or whether they would like to assist in providing coverage. Anything from smoking, drinking, occupational, and lifestyle habits are taken into account.
Following accepted coverage, next comes specifying a term. The reason this agreed-upon term is so important is because not only will it determine your rates, but it will also guarantee that any dependents or loved ones have financial security in the unfortunate event of your passing.
Take, for example, a term of 20 years. Should anything happen in the next 20 years, your appointed beneficiaries will receive an (often nontaxable) payment in full that they can then distribute as needed. The result? Less stress and more security for the beneficiaries.
Some policies are unrenewable. If your policy has expired, you may not be eligible to reapply for more coverage. This is often attributed to the common development of more serious illnesses and the more expensive it would become to seek coverage when you are much older.
What Can Term Life Insurance Cover?
Term life insurance covers an agreed amount between you and the insurer. The coverage is purely a financial recompense for any untimely death. The recommendation is to determine who your beneficiaries are.
Are you covering your spouse, children, or other loved ones? If so, it is important to identify the costs of supporting them currently and to anticipate or provide a period of time where they can financially become independent.
The recommendation for many is to take into consideration your annual salary, and then multiply it by 10 or 12 years (or however many years might be necessary). For many, it is also recommended they add around $100,000 to $150,000 extra per child to make college more easily attainable and with less stress.
In short, term life insurance policies cover an agreed-upon specific amount to be disbursed amongst your beneficiaries, so you decide the amount you want to cover and for how long.
Types of Term Life Insurance
There are generally three main types of policies within term life insurance, as well. We list them here for simple referencing.
Level term policies are the most expensive of the three, initially, but for good reason. This type of policy has a fixed premium and a fixed timeline of typically 10 to 30 years. Because the costs of insurance tend to rise, the fixed premium is initially a little higher than the other two types of term policies, but the fixed monthly premium is a bonus for many.
Yearly renewable term policies can be renewed, as it states in its name. These are done yearly, and while the prices may start off low, initially, they have the tendency to end up becoming really high-cost due to the increased cost of covering someone much older.
Someone much older is much more likely to face more risk for death, and as such term life insurance companies will ask more monthly for this kind of coverage. Still, if you are purchasing much later in life, this might be appealing to get some coverage.
Decreasing term policies are good for those who are well calculated in their coverage necessities. While it may seem counterintuitive to purchase a plan that covers less as time goes on, it saves money.
By reducing coverage, premiums are reduced, and typically those seeking these plans want to cover mortgages, which over time need less coverage. These types of policies are often tied in conjunction with your mortgages.
Is Term Life Insurance Right for You?
Term life insurance is a reliable method to insure yourself, protect those you care about and provide a large safety net for an extended period of time in the unfortunate event that you should pass.
Whole-life insurance policies can run high premiums, and taking into account your needs, it is easier to determine what period of time provides the greatest safety net for you and your family. To learn more about term life insurance and if it can benefit you, please contact us today.