Why is term life insurance the most popular option for life insurance coverage?
Term life insurance is perhaps the easiest form of life insurance to both get and understand. It offers a benefit payout to your loved ones if you pass away within the term period. If you do not pass away, then the insurance policy simply expires at the end of the term.
Quotes for term life insurance are often much lower than whole life insurance policies. In fact, some term policies cost just a small fraction of what a whole life policy may run. But, term policies don’t have the investment potential that whole life policies do. Nonetheless, term policies work very well for most individuals and families, and they are used far more often than whole life policies because of the significant cost savings.
Term life insurance will usually cover between one and 30 years. You will pay a monthly or annual premium for the length of the term. Once the term is over, you stop paying the premiums, and the coverage expires. There is no residual cash value of the policy.
Depending on the policy, the premiums will either stay the same through the entire term or increase as time goes on. Each term policy has a guaranteed death benefit.
If you pass away during the term, then whoever you named as the beneficiary will receive the value of the coverage — the “death benefit.” Your loved ones can use this money for whatever they would like. Some of the most common uses include:
Funeral and burial/cremation expenses
Paying off outstanding debts and obligations
Paying monthly obligations like utilities and the rent/mortgage
Investing money for long-term saving or a future large purchase (such as college education for children)
You can often structure your term life insurance to either pay out in one lump sum or in installments.
Most people choose term life insurance because it is so much more cost effective than other options. Lower insurance quotes mean you can spend money on other things, including using other forms of investment separate from your insurance policy.
Term life insurance also works well for those who plan to have most of their significant debts paid off by the time the term insurance expires. If your children are out of the house, you have saved for retirement, and your more substantial debts are paid in full, you may not need insurance any longer. Timing your term life insurance to coincide with this date can be very helpful and cost-effective.
If you're a beneficiary on someone else's life insurance policy, the first thing you want to do is get your paperwork in order. Make sure you have a copy of the policy in a safe location that shows your entitlement to the policy.
If you've just received a benefit, you have a few options for how you want those funds disbursed. Most policies let you choose between a lump-sum payment or an installment plan. Choosing the right plan is a decision based on your financial needs and any financial responsibilities left by the insured.
If you want a cost-effective way to ensure your family has the funds they need if you pass, term life insurance might be a good option for you. PolicyScout can review your potential opportunities and provide quotes so you can compare policies. Contact us to learn more!