Would your family be able to carry on without major financial difficulties if you were to pass away unexpectedly?
It can be hard enough for a family just trying to recover from the loss of a loved one and cover funeral expenses or unexpected medical bills. But imagine your family realizing a few months down the road that there isn’t enough income to cover the mortgage, car payments, and living expenses.
With life insurance, you’ll have peace of mind that your family won’t be under financial duress in the event of your death.
If you’ve never shopped for life insurance before, it may feel overwhelming. What’s the difference between policy types? How much coverage is enough?
Can you even afford it?
Most people are pleasantly surprised to find that one life insurance type is incredibly affordable while offering plenty of coverage:
Term life insurance.
What is Term Life Insurance?
Both the most popular and the simplest form of life insurance, a term life insurance policy has you covered for a selected period of time. These terms usually last from somewhere between one and thirty years. The policy is designed to pay death benefits to your loved ones if you were to pass away within the designated term.
If you were to opt for a 20-year term, the premium payment amount that you set up at the onset of your policy will remain fixed for the 20-year life of the policy.
After the 20-year term expires, so does your coverage and your fixed rate.
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Advantages of Term Life
The biggest advantage that term life insurance offers is the assurance that your loved ones won’t struggle with financial issues in the unexpected event of your death.
Your term life death benefits can:
- Be used to pay for funeral or unexpected medical expenses
- Help provide for a loss of income for your family
- Cover short-term debts
- Provide additional income during child-raising years
- Pay off a mortgage debt or help pay for a college education
Protection Anyone Can Afford
A major advantage of term life is its affordability. Term life insurance is the most cost-effective way to get life insurance coverage, which is why the policy is so popular.
There are a few reasons why term life is so much more affordable compared to permanent life insurance policies such as whole life or universal life.
For starters, term life insurance only guarantees death benefits during the specified term. If you were to outlive the policy term, the insurer would never pay out a death benefit. Other forms of life insurance, such as whole life, offer guaranteed death benefits whether you pass away in 2 years or live to be 100.
Secondly, there’s no cash value savings component with term life insurance. When you purchase a permanent life insurance policy like whole life, a portion of your premium goes into an interest-earning savings account. So part of a whole life premium payment goes towards the death benefits and another portion is paid towards the cash value component. With term life insurance, however, there is no cash value savings component.
Understanding these two differences - the guaranteed death benefits and cash value component of permanent life insurance - can help you see why a term policy can cost so much less than permanent life policies.
So how much is term life, anyway?
Your policy premiums will be determined based on factors such as your age, habits, and health history. But if you don’t smoke and are reasonably healthy, a 20-year term with $500,000 worth of coverage could be yours for around $30 - $50 a month. And that’s protection that almost anyone can afford.
Types of Term Insurance
When choosing what term insurance policy is right for you, it’s important to know the different options that are available to you.
Most term life insurance policies are convertible. You can upgrade your 20-year policy to lifelong protection, for example, by converting it to a permanent policy. You can typically convert your existing term policy into a permanent policy without any additional medical exams or health questions, as long as you do it within a certain time frame or by a certain age.
Let’s say you’ve had your term policy for ten years, and your financial situation has changed from when you first got your policy.
You can now afford to invest in a permanent policy with guaranteed lifelong death benefits, and you don’t want to worry about needing a medical exam to qualify for a new policy. Maybe you’re looking to diversify your investment portfolio, and you want to begin building up the cash value savings component of a permanent insurance policy.
For whatever reason, a convertible term policy provides you options to adapt your term life insurance as your financial needs change in the future.
Providing the same amount of coverage over a specified period of time, level term life insurance policies have a fixed premium.
With both premiums and death benefits staying consistent throughout the duration of the policy, this is the ‘set it and forget it’ life insurance option.
This policy is ideal for those who want their beneficiaries to have a fixed amount they can depend on if they were to pass away within the period of the policy.
With death benefits subsiding gradually, usually on an annual basis, a decreasing term life insurance policy also sees a reduction in premium costs over time.
A decreasing term policy is often a popular option for those who specifically want to cover the costs of a mortgage, should they pass away. As the benefits decrease, so does the balance of the mortgage.
Which Life Policy is Right for You?
For most, the cost is an important factor when deciding which life insurance policy is right for their family. While there are longer lasting permanent policies available, many young families with small children find a term life insurance policy to be the right fit.
Knowing that your family will be covered in the next 20 to 30 years, depending on the term you choose, means knowing you can help them get through hard times if you were to pass away. It can help your spouse pay the mortgage on the home your children are still growing up in, make up for the loss of your income, and could even help put your kids through college in a few years.
Term life is an affordable life insurance option that appeals to many people looking for protection against the unforeseen financial pitfalls that could strike in the event of their death. Term life insurance is a simple and cost-effective way to be sure you can provide for your family, no matter what may come your way.