What Is Term Life Insurance
Term life insurance, also called pure life insurance, is a financial product offered by the majority of insurance companies. Term life insurance policies have the particularity and the reputation to be the most affordable policies.
Term life insurance cost is so low compared to permanent coverage that you could qualify from $1 per day, depending on your health status, for a term life insurance policy.
How Term Life Insurance Works
In exchange of a monthly premium, term life insurance policy offers you a protection for a period of time called “term”. If the insured person dies during this term, guaranteed death benefit is paid to the beneficiary. If the insured dies after the cover lapses and the term expires guaranteed death benefit will not be paid.
So, in the end, why paying for a protection that might not apply? Term life insurance work is done, whether the death benefit has been paid or not: it did give the insured person and the beneficiary the peace of mind while they live their life, and that’s what every person with financial obligation is looking for.
Life insurance quotes realized by the insurance agent will depend on your life expectancy and of course, the amount of protection you asked. Life insurance companies indeed evaluate the risk you represent, and your age, sex, and smoking status will directly impact your rate.
Your financial advisor will question you on your habits of living as well, to offer you the term life that fits you in term of length, budget and life insurance needs.
So, how much will life insurance cost you? According to a study from 2020, by the Insurance Information Institute, “Americans consistently overestimate the cost of term life coverage. Half the population estimate the cost of life insurance at more than three-times the actual cost.”
Interested to know more about how life insurance works? Read carefully what follows.
Example Of Term Life Insurance
Level premium life insurance is an example of term life insurance, where the premium is guaranteed to remain the same all along the term length. Concerning the life insurance coverage amount itself, it increases. This term life policy is very advantageous for the insured, as the longer he pays his life premiums, the more important his cash benefit will be.
An important detail to remember: no matter what term life insurance policy you choose, there is no cash value accumulation in a term life plan, like you can have in permanent life insurance. The coverage is the death benefit your beneficiary receives when you pass away.
Here are other types of life insurance offered by life insurance companies you might be interested it.
Types Of Term Life Insurance Available
Level Term
Whether the insured person dies in the first years of the plan or two years before the life insurance policy lapses, the beneficiaries will receive the same amount. The death benefit is the unchanging part of the life policy in a level term life insurance.
However, level term life is sometimes mistaken for the level premium insurance. So, remember the difference: in the case of level premium insurance, the premium paid will remain the same, and death benefit increase over the years. In the case of level term, the death benefit will be the same, but the premium paid may vary. Here is another one of life insurance products.
Yearly Renewable Term Policy
Another type of policy among the term life plan is the yearly renewable term policy. With this term insurance, you can choose to renew your cover every year.
Here are the advantages of this term life insurance:
- You can keep the original face value amount (or death benefit) of your first policy,
- You may reclaim your coverage at the end of your initial term,
- The premium payments can be made once, so that you easily budget your personal finances,
- You can renew your term life policy without having to start the application process and with some life insurance companies, without any medical exam.
However, consider:
- A yearly renewable term policy is not a convertible term life insurance,
- As the insured person ages, the monthly life insurance premium will increase and the more costly it becomes to insure the person,
- If a disease or even a terminal illness develops, you’ll face a huge and sudden increase of the premium to pay.
Regarding the choice of life insurance policies, you should keep in mind your personal finances, your needs but most of all, life circumstances that might get in the way.
Decreasing Term Policy
Decreasing term life insurance offers constant life premiums, with a monthly or annually decreasing coverage.
If the coverage amount does decrease, why choosing a decreasing term for your life insurance policy? A life insurance company considers that the more you age, the more you increase your assets, and personal wealth. Your corresponding need of high levels of insurance decreases.
You might want to choose this insurance term life as the life insurance premiums are the cheapest of the market. This term life insurance policy is very attractive for young insurance seekers looking for a low-cost coverage option. The monthly cost of the paid premiums does not change. As the insured person ages, the life insurance company does balance the risk to insure you by a declining death benefit year after year.
Benefits Of Term Life Insurance
As you read it, the main advantage of term life is its affordability. Other life insurance options like permanent would offer the same amount of coverage for a much more expensive monthly premium.
The other main advantage is the flexibility of this type of plan: whether you are young and active, an entrepreneur, or a young parent with a family, a term life insurance policy would be a great fit.
Term Life Insurance Vs Permanent Life Insurance
We mentioned other life insurance options: it’s time to talk about permanent life policy, and why it’s still a valid solution. This type of policy is lifetime coverage. You’ll pay your premiums for you entire life, but your beneficiaries are guaranteed to receive the death benefit, no matter when you pass away: in 2 or 30 years.
What are the common points?
Both the death benefit in permanent life insurance and term life can reach the same amount of protection, but the difference will be in the monthly paid premium. We mentioned it already: the cost of premiums is much high for a permanent policy.
The death benefit is always a tax-deferred cash, which is why a life insurance policy is always a good option to have to take care of your family. Permanent life insurance policies offer two types of plans.
Whole life insurance accrues a cash value over time: cash value is what you’ll get if you cancel your policy to the life insurance company. Monthly premiums are fixed, and the cash value grows tax-free deferred over time.
Universal life insurance is excellent for retirement planning, as this plan allows you to have access to the stock market investments of the life insurance company, which creates a saving element in your policy. You can then withdraw this benefit or use it to pay your life insurance premiums. This life insurance policy is excellent for retirement planning as you pay premiums your entire life to accumulate wealth. When you pass away, you’ll be able to transmit a much greater tax-free asset to your beneficiaries. Universal life policy also offers greater flexibility in the premium payment.
Convertible Term Life Insurance
You already chose your term life insurance policy and you now regret it? The good thing about term life is you can convert it sometimes, depending on the life insurance company, and without any medical exam. This type of policy allows you to keep your options open, in case your budget changes.
You can convert your term life coverage at any point as long as your life policy is still active.
It’s not easy to determine the best life insurance plan for you and your loved ones. After learning all about term plans, we recommend you talk to a financial advisor to help you decide on the best plan of action.
