Term Life Insurance

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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.

How Does Term Life Insurance Work?

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 payout in one lump sum or in installments.

Who Can Benefit from Term Life Insurance?

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.

Consider your risk profile

When considering a life insurance policy, insurance companies will evaluate your risk factors including age, current health, family health history, and the activities that you participate in. Participating in high-risk activities, or having a major disease like kidney failure can affect your costs resulting in higher premiums or having an insurance company deny your eligibility for coverage. Term life insurance policies can be beneficial for people that fit these risk profiles, as they typically have lower premiums, and smaller death benefits to cover your final expenses in the event of an untimely death.

Can I take out a Term Life Insurance Policy for someone else?

In some cases, it is beneficial for people to take out policies on behalf of their loved ones in the event of avoiding being burdened with the final expenses associated with the death of a family member. Many people are surprised that they can take out a policy for their siblings, parents, or grandparents so long as you receive their consent and provide that your family member has an insurable interest. Let’s say you and your sibling have a shared debt, such as a mortgage that you both are signed on. In the event of an untimely death, you can be protected by your sibling's loss of income by an inexpensive term life plan with a term that matches your mortgage length.

What if I'm a beneficiary?

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.

Read more: I Just Received a Life Insurance Benefit. Now What?

Ready for a Quote?

The research process of finding a quote can be overwhelming. We have compiled a list of the best insurance blogs to help you navigate the insurance market to ensure you are getting all the information that you could require in order to make an informed decision. 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. Finding an insurance aggregator or using PolicyScout can review your potential opportunities and provide quotes so you can compare policies. Contact us to learn more!