Term life insurance is the most affordable life insurance policy on the market today. Like the name says, this is coverage for a specific period of time, known as a “term.” This facet of the coverage is what makes it so simple yet so cost-effective for many Americans.
Term life insurance offers coverage for only a certain period of time, and it doesnt have any extra benefits like investment components, so the policy is always the most affordable option. This form of coverage is often called “pure life insurance” because you’re only paying for the coverage and nothing else.
Before we dive into the article, let’s see how much you know about term life insurance:
Term life insurance has which of the following characteristics?
- It’s affordable.
- It’s easy to apply for and purchase.
- It provides tax-free coverage.
- It is convertible and renewable.
The answer? It’s all of them! Term life insurance incorporates many benefits that make it an excellent option for coverage. But there is more to term life insurance that many people may not know. Here are 10 things you should know about term life insurance.
When should term life insurance be purchased?
There are several times in your life when you should consider purchasing term life insurance. Remember, life insurance is typically purchased to provide people with a monetary benefit when the insured passes away; it is a financial tool to help others. Some examples of critical times when you should purchase life insurance include:
- Ensuring your loved ones are financially secure. This is the most common example of when you should purchase life insurance. If you have loved ones who depend on you financially (think about a spouse, child, parent, or sibling), then you should consider purchasing a term life insurance plan. This benefit can help cover daily living expenses, future plans, and more.
- You want to cover your final expenses. Your beneficiaries (the people who receive your plan’s benefit) can use the benefit of your plan to help cover your final expenses. These costs can include burial fees, final taxes and bills, and ceremony costs.
- After purchasing a home. When you buy a home, you take on the most significant debt of your life. It is a necessary purchase, but a costly one. If you pass away, your spouse or children may inherit this debt, and this can put a strain on future plans and goals.
- You are starting a business or taking over one. Term life insurance can be invaluable if you have a business and plan to keep it in your family. A term life policy can help your business carry on if something happens to you. It can give your business partners and family members the capital they need to keep everything running smoothly during a difficult time.
Who are the right people for a term life insurance plan?
- Those who have temporary needs. Do you own a home? Are you trying to ensure your children always have access to education? Term life insurance can be the best way to help protect these temporary needs and ensure they are secure even if you pass away. You can get a term life insurance plan that matches the remaining time on your mortgage; that way, you always have coverage right up until your mortgage is paid off. You can also protect your children’s future dreams with a 20-year term life insurance plan that will financially safeguard them right up until they reach adulthood.
- While you’re young. Younger individuals can significantly benefit from a term life insurance plan. You can secure low rates for a period of 10, 20, or 30 years if you are young and healthy. Why not ensure affordable coverage for an extended period of time? Having affordable coverage for a reliable period is a great benefit of term life insurance.
- If you have active investments. Most permanent life insurance plans provide investment options for you to choose from, but these can be limited. If you already have active investments, purchasing term life insurance is a great way to save on coverage. Plus, you can invest the difference you save on your term policy back into your investment accounts.
Who shouldn’t purchase term life insurance?
- Those with permanent dependents. Having a permanent dependent means having someone who will depend on you and your income for life. This could be a spouse or child with a lifelong condition who requires permanent care. If they outlive you, your term plan may not be the best option to ensuring their financial security.
- You’re approaching retirement. If you are reaching retirement age, a term plan can be more expensive, making it not as viable a coverage option. Whole life insurance may be a better option if you are at this stage of life.
The main advantages of term life insurance
- Price and affordability. Like we mentioned above, term life insurance is affordable, pure and simple. Your first term period will likely be the most cost-effective policy you will ever own. It is important to note that your rates will increase with every renewal of a term plan, so it will not always stay so affordable.
- Term life is perfect for short-term financial needs. If you only need coverage for a specific period, whole life insurance can be too costly and unnecessary. For example, if you need coverage for ten years, a term 10 plan can provide you with the reliable coverage you need at some of the lowest rates on the market.
- Term coverage is versatile and flexible. Term policies often come with a renewal and conversion benefit. When you renew your term plan, you can continue your temporary financial coverage for another set period. On the other hand, if you convert your policy, insurers allow you to convert your temporary plan into a permanent one. These options give you more choice with how you would like to manage your plan and adapt it to your needs.
- Tax-free benefits. The death benefit that comes with a term life insurance plan is typically not subject to taxation when it is paid out. This means that your beneficiaries will receive your plan’s benefit without the worry of it being subjected to federal income tax and estate tax.
The main disadvantages of term life insurance
- Zero investment options. Unlike a permanent life insurance option, you will not have an extra investment component alongside your insurance coverage. So, if you want to start investing and are looking to do so with your life insurance policy, a term plan isn’t for you.
- Coverage for a term, not life. As we can see from the name, term life is designed for providing coverage for only a specific time. This means that there is the potential that your coverage can end before your need for it does. If you are looking for permanent coverage right from the beginning, you may want to consider a whole life plan.
- Your health can impact eligibility. Like most life insurance plans, your health will determine if you can apply for coverage, and if you can, how much you will be paying for premiums. If you are in poor health, you can expect to pay much more for life insurance coverage.
What are the costs involved, and how does it work?
When you purchase life insurance coverage, you pay a monthly or yearly premium. This fee covers many different factors, including insurance agent fees, operating expenses for the insurance company, taxes and other service fees. You are not simply paying for your coverage. Your payments go a long way to ensuring the insurance company can continue to operate and that the agents who help you find a plan get the payment they deserve for the service they provide.
Are there any exclusions with term life insurance?
Depending on the term life insurance plan and the insurer, there may be certain exclusions you should know. Typically, insurance companies will not pay out a benefit if the insured’s death is the result of suicide, war, or even terrorism. These exclusions can vary from insurance provider to insurance provider, so it is always important to read to the fine print of your policy and ask questions to your advisor to get a better understanding of your coverage.
Choosing a beneficiary
This is a tough topic to help with as everyone’s situation is different. Choosing a beneficiary requires thought and careful planning as this will be the person or people who will directly receive your plan’s benefit if something happens to you.
Remember the reason you are purchasing the coverage in the first place, this will give you direction. Is it to support your family? Then choose your spouse or children. Are you trying to keep your business stable after you’re gone? Then the beneficiary can be your business partner or other family members.
Are there cash value term plans?
There are no cash value options with term life insurance plans. As we touched upon at the beginning of this article, term life insurance is the most straightforward form of coverage and often has the name “pure life insurance,” meaning this is only life insurance coverage, nothing more. It is because of this sole focus on providing life insurance coverage that makes term life plans so approachable and easy to apply for and purchase.
How do I choose the best form of term life insurance?
The best course of action to take when shopping for a term life insurance policy is to think about your current and future financial needs. By taking some time to understand what you have planned for your life, you can better pick the right form of term life insurance coverage.
At termforme.com, we specialize in helping Americans find the right form of temporary coverage for their unique needs. Our licensed and professional advisors work one-on-one with our clients and go over all of the options that best suit their plans and budget. There is no mountains of paperwork to complete and no need to schedule any face-to-face meetings, our entire process is done right over the phone.
We offer a 10-year term life insurance policy that provides the most accessible and affordable coverage. This plan is ideal for covering temporary debts and day-to-day expenses so your loved ones can carry on if something happens to you.
If you need a little more coverage, our 20-year term life insurance plan is perfect for larger debts like a mortgage. This term plan can help protect your loved ones from having to pay off your mortgage out of their own pocket during a difficult time.
Finally, if 20 years isn’t quite enough coverage for your needs, you can choose our 30-year term life insurance coverage option. This option is best suited to help with larger financial needs like securing a family business. If you’d like to learn more about your plan options with termforme.com, please feel free to complete our short free quote form here on our website. Once that is submitted one of our dedicated advisors will reach out to you and provide you with a range of coverage options and free no-obligation quotes.
Written by: Adam Bianco