Term life insurance works by providing coverage for a set “term” of time.
The fundamental feature of this type of life insurance is the “term” or length of time the policy is in-force. Typical terms are 10, 20 or 30 years. As long as you pass away while the policy is in-force the death benefit would be paid directly to your beneficiary(s).
Term life insurance protects families when they are most vulnerable. For instance, parents that have young kids may want coverage until their children graduate from school. Or, a family that just bought a house may want protection until their home loan is paid off.
If a person outlives their policy term, the insurance ends and they must buy another policy. Unfortunately, the premium will be more expensive since that person is older and the insurer will consider health issues and medical history.
Who needs Term Life Insurance?
Term life insurance is usually purchased to replace your income if you die. The proceeds from the policy will help your loved ones pay debts and living expenses.
For example, if you are a homeowner and you were to die suddenly, your spouse would have to pay the mortgage on his or her own. If you have enough coverage, the policy’s death benefit will pay off – or at least maintain the mortgage payment.
Additional reasons for Term Life Insurance –
- Family members/spouse who need your income
- You have children or are planning to have them
- You have significant debt – mortgage, student loans, etc.
- Financial legacy for your family
Ultimately, life insurance is put in place for your beneficiary(s) financial security.
How much Term Life coverage do I need?
The prevailing thought on this is to have 5 to 10 times your income in coverage. The term length should span most of your major financial obligations – maybe until the house is paid off or your children are grown.
The purpose of Term Life Insurance is to prevent a financial burden in the case something unexpected would happen. As a result, the coverage should account for living expenses like-
- rent or mortgage
- utilities (gas, water, etc.)
- credit card debts
- additional bills
After choosing a term length and amount of coverage, there will be a monthly or annual payment for the length of that policy.
How much can I expect to pay for term life?
The price of your policy will vary depending on your age, health and other risk factors. The younger you are when you begin the policy, the more cost effective it will be.
A healthy male age 35 may qualify for $250,000 of Term Life insurance for $20.13 a month. A very reasonable premium for most families to budget for. According to LIMRA, 80% of consumers misjudge the cost of Term Life insurance.
Choosing the right Term Life policy
Determining what “term” of time you should get (typically 10, 20 or 30 years) will require an analysis of your financial situation.
Some questions to answer are –
- When will my obligations change?
- When will my dependents be out on their own?
- What are my debts, loans or mortgage?
When purchasing life insurance you should always thoroughly examine your circumstances. Look closely at your present situation and review your policy whenever you experience a major life change.
In conclusion, no matter which plan of life insurance you choose, it is very important to understand the specific guidelines of each type. Here at Life Choice Advisors, we recommend a no obligation ‘needs assessment’ with one of our brokers. We can assist you and your family with the best options available.