What Is a Term Life Insurance Policy?
Unlike whole or permanent life insurance, term life only provides death benefits for a specific length of time, making term life generally less expensive. A term life policy covers you during your prime earning years, usually between the ages of 30 and 60. If your family depends on you financially, you should have term life insurance.
10 Things to Consider When Buying Term Life Insurance
1. Talk about life insurance with your family.
No one likes to think about the loss of a family member and the consequences of losing your income, but your loved ones can often point out needs you might have missed. Take the time to discuss the future of your family, such as educational plans and personal aspirations. Ask each member of your family where they would like to be in 10 years, in 20 years.
2. Calculate how much coverage you will need.
Whenever you consider going through one of life’s big steps, such as marriage, kids, buying a house, starting a business, or retirement, you should consider what would happen if you were not there. Take into account your death expenses, major debts, upcoming major expenses, such as tuition costs, and income replacement. Funeral costs can vary, but average around $15,000. Experts site varying suggestions for income replacement. The insurance industry usually, generously, calculates what the 20-year cost of losing your income would be, but more conservative planning suggests 50% of your pre-tax income, adjusted for inflation, for the years from now to your expected retirement age.
3. Calculate how much you will be willing to pay for term life insurance.
Choosing reasonable term life insurance rates is vitally important. If you choose a policy that is too expensive and can’t keep up the payments, you will lose all of that work and your policy will be void. How much you are comfortable paying depends on your age, your health, and the amount of benefits you need. Typically, a 40-year-old male non-smoker who buys a 20-year term life policy with a fixed annual premium will pay about $350 per year for a $500,000 benefit. The same policy might cost $1,000 per year for a healthy 50-year-old man.
4. Know your state’s insurance guarantee limits.
Insurance is regulated by the states, so in the unlikely event that your term life insurance provider goes out of business, your state’s central guarantee fund will cover most of your policy. But because those guarantee funds are limited, it may not cover your entire policy. Find your state’s guarantee association, for guarantee limits. If you find you are looking for coverage over your guarantee limit per carrier, one option might be to split your coverage between multiple carriers.
5. Review riders—policy add-ons—that could meet your specific needs.
Life insurance riders provide additional benefits to a basic policy for an additional price, adding extra coverage and considerations that can make your term life policy fully customized for your specific needs. For example, a premium waiver rider eliminates premiums for qualified disabled policyholders. A conversion rider, ideal for young policyholders, converts a term life policy into a whole life policy without a health exam, allowing you to take advantage of the low cost of a term policy now but have the option for the future stability of a permanent life plan.
6. Get multiple quotes from multiple insurance providers.
Life insurance costs and coverage options can vary significantly from carrier to carrier. By comparing quotes from multiple carriers you ensure that you are getting the coverage you need for the price you can afford.
7. Read the fine print closely.
Some activities like skydiving, rock climbing, and other extreme sports are excluded from most policies unless you’re willing to pay a higher premium. Also be aware of the contestability period, usually 2 years, when insurance companies can cancel your policy if you don’t declare things like a smoking habit, high blood pressure or other health conditions. Be transparent with your life insurer to ensure that your loved ones benefit from your policy.
8. Choose your beneficiaries carefully.
Most term life policyholders choose their immediate family as the beneficiaries. But make sure you don’t leave out loved ones who depend on you financially. At the same time, make sure you trust your beneficiaries 100%.
9. Inform your beneficiaries.
This tip might seem silly, but you’d be surprised how many families don’t know their late loved one had life insurance. But if you’re including your family in your term life decisions, you won’t have this problem.
10. Store your policy information in a secure place.
Your beneficiaries may suffer if they cannot find important insurance documents when they need them. For each policy and each beneficiary, keep a document with the name of the life insurance company, your policy number, the date it was issued, the type of policy, the address of the office that issued the policy and their headquarters, and the amount of death benefit allotted to that beneficiary. It is suggested safe practice to keep at least one copy of each in a safe location at your home, and another in a secure location like a bank safe deposit box.
5 Ways to Save on Term Life Insurance
If you’ve been avoiding getting life insurance because of the cost, take heart: There are things you can do to get bring the price down.
1. Opt for term life insurance
Term policies, as opposed to permanent policies, are usually substantially less expensive. With term, you purchase a policy to cover a particular amount of time, usually 10, 15, 20 or 30 years, with a fixed death benefit. Premiums for term coverage often stay steady and won’t go up over time. The death benefit can help a beneficiary pay off debt, like a mortgage.
2. Don’t renew a short-term policy over and over.
Each time you re-up your term life insurance, the premiums increase. To avoid this, get a single, longer term policy is more cost effective. For example, a single $300,000 policy will be cheaper than two separate $150,000 policies, one after the other.
3. Purchase while you’re younger.
The older you get, the costlier coverage is. Start younger and your premiums will not only cheaper but also locked in at that rate.
4. Avoid a no-medical-exam policy if you can.
Some companies offer guaranteed issue policies for which you don’t have to take a medical exam. Buyer beware, because these kinds of policies are much more expensive. If you are healthy or have only a few medical issues, take a medical exam and you’ll get lower premiums.
5. Compare life insurance quotes before you buy.
Get several life insurance quotes before purchasing. Use our quote comparison tool and get quotes from insurance companies that cover the same things but at differing prices.