Term Life Insurance
Term life is a life insurance option that is easy to manage and won’t break the bank. Offering you the best price and ideal coverage amount when you need it most. It can help keep your family protected while remaining cost effective. Designed to help you meet your short-term goals.
What is term life insurance?
Term life insurance offers death protection over a specified period of time, or term. Unlike permanent life insurance which lasts throughout the entirety of your life, term life will expire.
Due to its flexible nature, term life insurance is usually an affordable life insurance option for all. It can serve as a crucial source of income for your family, following your death.
The duration of your policy will be determined based on how long you think you may need it. The average term life insurance policy may last anywhere from 10 to 30 years and is often renewable up until age 39.
If you pass before your term is up, your family would then receive a tax free death benefit. The death benefit can be applied towards the costs of your funeral expenses, living costs, and much more.
Defining your term
A term life insurance policy offers you coverage for a very specified period of time. Usually 10, 20, or 30 years. This can allow you to purchase the ideal amount of coverage for a small initial premium amount.
This type of policy can be best for those looking for coverage while experiencing major life events. These goals may include paying off large debts, raising young children, a new mortgage, or marriage.
If you die while your term is still in force, your beneficiaries would then receive a death benefit. Once the time or terms of your policy are up, so are your premium payments and your policy would then expire.
What happens when my term expires?
When your term life policy expires there are a couple of options available to you.The most common option includes:
- Purchase a new policy
- Convert to a whole life policy
- Renew your policy at a higher premium amount
- Not renewing your policy
Who needs term life?
If you have a family who relies on you for financial protection, you need term life insurance. Additionally if you have any unpaid debts which would be assigned to someone else in the event of your passing, you need term life insurance.
Term life insurance is a great option for those experiencing major life events such as purchasing a home or pregnancy. These life events can incentivize you to protect what matters most to you. While the low cost of a term life policy can help ensure high coverage even on a small budget.
Allowing you to focus on your priorities while securing your family’s future. This type of policy makes obtaining a large amount of coverage, for a set period of time, while on a budget possible.
Once the debts begin to diminish or your children finally grow older, you may consider less coverage. In the meantime, it is best to ensure you and your family are fully protected.
The takeaways of term life
- Term life can offer large coverage for a low cost
- Term life is ideal for those experiencing new life events
- Unlike regular life insurance, term life will expire
- The average policy duration is 10-30 years
- Your loved ones will receive a death benefit if you pass within your terms
Assigning Costs
Term life insurance is extremely affordable when compared against regular whole life insurance. Your premium will usually remain the same throughout the entire duration of your term.
Here are the factors used to determine the cost of your premium:
- Coverage level
- Age
- Risk
- Health
- Riders
- Term length
Risk & premiums
Similar to with whole life insurance, underwriters wish to determine their risk to insure you. In other words, they want to determine how likely you are to utilize your policy. If they deem you are very likely to access your policy, you will be deemed more of a risk to insure. Inversely If insurers determine that you are less likely to utilize your policy, the opposite is assumed.
Your risk level will correspond directly to your premium amount. The higher risk individuals face higher premiums and lower risk applicants face more favorable options.
Health
Those with health issues or chronic conditions are seen as more of a risk to insure. Because of this, they will also face higher premiums. Even so, term life insurance is a better option for those with less than perfect health.
A whole life insurance policy may subject those with health issues to steep premiums. Another issue some may face is being denied coverage all together. Term life insurance policy can be a great option for those wishing to improve their health before applying for a whole life policy.
Age
As your age increases, so might your premium depending on at what age you apply for coverage. While your term life premium will usually remain fixed, your assigned premium will correspond with your age at the time of your application. This means that older applicants can expect slightly higher premiums.
Coverage level
Those who desire more coverage will face higher premiums.This means that a larger death benefit amount will also equate to a higher premium
Term
Your term length will also directly influence your premiums costs. Shorter terms equal a lower premium and therefore, longer terms equate to a higher premium amount.
Risk
Since your premium is determined based on your presumed level of risk, those with riskier jobs can expect higher premiums. The same goes for those with risky hobbies such as frequent divers ,motor vehicle drivers, and others.
Riders
As with any type of insurance, adding additional riders to your policy can result in a higher premium.
What is a rider?
A rider is a feature added on to your policy meant to enhance your benefits. They usually come at an additional cost and can help customize your policy to fit your needs. Some common term life insurance riders include:
- Accelerate death benefit rider
- Return of premium rider
- Term conversion rider
Accelerated death benefit rider
An accelerated death benefit rider (ADB) can usually be added onto your term life policy. This rider is also commonly referred to as a terminal illness benefit.
ADB can allow you early access to your death benefit when diagnosed with a terminal illness. There are varying conditions which must be met to access this feature however, this feature is often built in at no additional cost.
Return of premium rider
Because your term life policy is set to expire you may outlive your policy. Should this happen, a return of premium rider is designed to help return some of your premium payments to you.
Term conversion rider
Some may reach the end of their term life policy and find that they still want coverage. A term conversion rider will convert your term life policy to a whole life policy upon expiration.
Whole life insurance
Whole life insurance offers permanent life insurance with a guaranteed death benefit. This insurance is a suitable option for those with life long dependents or those wishing to leave behind additional inheritances.
How does Term life differ from Whole life?
Term life insurance differs from whole life insurance in a couple of different ways. For one, whole life insurance features a policy cash value. Whole life insurance is also the costlier option between the two.
Perhaps, the main difference between the two is that, whole life offers coverage for the entirety of your life whereas term life expires after a certain term. Other common difference between the two are as follows:
- Price- Whole life insurance is more costlier than term life insurance
- Length- Whole life insurance offers lifelong coverage whereas term life expires
- Coverage- Typically whole life insurance offers more extensive coverage
Choosing Term or Whole life
Choosing between a term life insurance policy or a whole life policy can seem tricky. While term life is an ideal option for most families some may have special circumstances. The type of coverage best suited for you will vary by your particular situation.
Term life is best suited for:
- Those who want affordable coverage
- Those who do not qualify for whole life
- Someone who only needs temporary coverage
- Someone focused on paying off debts, mortgages, etc
Whole life is best suited for:
- Those with extensive assets
- Those who wish to leave behind significant inheritances
- Someone who can afford the additional cost
- Someone with life long dependents
How much coverage do I need?
As stated before, your level of coverage is directly related to your premium amount. Since the main goal of term life insurance is to offer an affordable coverage option, you may want to manage the affordability of your policy.
You should aim to purchase a sustainable amount of coverage that will outlive your longest debt without becoming too expensive. Some factors to consider when determining this amount are:
- Dependents- Children, parents, spouses
- Debt- Mortgage etc.
- Future costs- College expenses for children etc.
- End of life costs- Funeral costs etc.
- Complexity- Term life insurance is simple and easier to understand
How do I shop for term life insurance?
The best way to shop for term life insurance is to work with a licensed agent. Your agent can help you shop the market and compare prices. An agent can also help you choose amongst the various insurers and offer insights on each.
You will want to consider each insurer’s individual insurance rating. Your policy should meet your benefit and budgetary needs.
You should customize your policy to fit your needs. Be sure to add on any additional riders you think you may need. Your agent can help explain these riders in fuller detail.
Applying for term life insurance
Once you agree upon an insurer and type of policy, you would then apply for coverage. Following your application, you would enter the underwriting period. Throughout the underwriting period, insurers will assess your risk and assign your premium. An agent can also help guide you through the underwriting process.
Once you have been approved and your premium is assigned, you will choose to either accept or deny the policy. Upon acceptance you would sign off and assume responsibility for your premium payments until your term expires.
If you do not wish to move forward with your policy after acceptance from an insurer, there is no harm done. You simply would not sign off and your policy would not be enforced. It is as simple as that when it comes to term life insurance. Making it a simple coverage solution for all.
Other options
If you are unsure about whether a traditional term life policy is for you, consider other options. There are plenty of variations of term life insurance that may be better suited for you. Some of these variations include:
- Group term life insurance– Offered by some employers
- Non medical exam term life insurance– extends coverage without medical underwriting
Term life insurance policies, make it easy for everyone to find the perfect amount of coverage for the right price.