Term Life Insurance
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Term life insurance is the simplest and most affordable type of life insurance you can get. It lasts for a set period of time (the term), such as 10, 20, or 30 years. If the insured dies during the term, the beneficiary—usually the spouse and/or children— receives a tax-free benefit payment.
The main reason people get term life insurance is to protect against loss of income in case of death, so their loved ones will be financially secure and can cover essential expenses, including living expenses, mortgage payments, and college tuition.
The cost of raising a child to the age of 18 is more than $250,000. You want to know that your family will be happy, comfortable, and cared for, regardless of unexpected life events.
Term life insurance is best suited for people who need insurance coverage for a specific duration. For example, if you are 40 years old and want to cover your income until retirement at age 65, you can purchase a 25-year term life insurance policy. In case of death before retirement, your policy will pay a benefit to the beneficiary—in most cases, the spouse or children.
Some people buy term life insurance as a supplement to a whole life insurance policy, to cover specific financial needs, such as a mortgage or college tuition.
Term life insurance offers pure death protection only. It offers no living benefits, such as guaranteed cash values.
When selecting a term life insurance policy and the amount of coverage, the first factor to consider is the family’s financial obligations during the policy term. These may include:
Next, consider your annual income, how many years you expect to continue earning income, and current assets. Once you’ve planned for the major expenses above, multiply half your annual pre-tax income by the number of years until retirement.
Many families will need somewhere in the range of $500,000 to $1 million in coverage. A policy with this level of coverage will cost somewhere in the ballpark of $350–650 a year. The rate may vary depending on different factors. Check out the Term Life Insurance Policy Rates section to find out the important considerations in setting affordable term life insurance rates.
The two main types of term life insurance are level term and decreasing term. In a level term life insurance policy, the death benefit remains fixed at every point during the term. . Level term life insurance is the most common type purchased. In a decreasing term policy, the death benefit has a decreasing benefit and reaches zero at the end of the term. Decreasing term policies are suitable when you have decreasing liabilities, such as mortgage payments. Types of level term life insurance are:
In a term life insurance policy, you pay an annual premium that covers the risk of death during that year. Level premium policies have premiums that remain fixed during the term, while others have premiums that increase over time.
Factors that determine your premium are age, health, marital status, career, and location. In most cases, the insured must get a medical exam, and the results can affect the cost of your premium. Smokers will pay higher premiums, as will those with health conditions.
Guaranteed issue term life insurance policies do not require a medical exam, but are more expensive.
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