What is Term Life Insurance?
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UPDATED: Aug 13, 2020
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Term life insurance is just one of the many different types of insurance policies you can purchase. Before you make a decision to purchase term life insurance, you need to understand what it is and how it can meet your life insurance needs. Term life insurance is a common and effective life insurance package that can meet your life insurance needs and fit into a tight budget.
TIP: Term life is common because it is the right policy for a lot of people. Read about term life, assess your family’s needs and budget, and decide whether or not a term life plan is right for you.
Term Life Insurance
Unlike permanent life insurance plans, term life insurance only has one purpose: provide the beneficiaries named by the insured with a death benefit should the person die during the term. There is no cash value, there are no investments, and you cannot take a policy loan against a term life plan. Term life insurance simply provides protection should the insured pass away within the specific life of the contract. You can usually purchase term life insurance in 5yr, 10yr, 20yr or 30yr Terms, after that time, the insurance goes away and you need to renew or get a new life insurance policy.
Although the life of the policy has a set term, it may cover the greatest years of need – when the children are extremely young or are in college or during the time period of a mortgage. Term life is flexible because it is for a set period. After the period your needs may change and you can get a better policy to suit your life insurance needs and your budget.
Term Life Insurance Premiums
Known for affordable premium payments, term life is typically going to be cheaper than a permanent life insurance plan. Because your premium is focused strictly on providing a death benefit, and not on investing or building cash value in a savings account, the term life premium will be lower. While you will lose out on an investment account accumulating cash value, owners of term life insurance are free to use the money they save on life insurance premiums to increase their monthly budget, or invest in a separate account and build their wealth.
TIP: Term life insurance’s focus on the death benefits allows for lower premiums and greater flexibility to spend your money as you wish. Take the time to manage your term life plan
Term life plans are also flexible in the coverage you can provide. If you find the need for additional term life coverage, you can layer two plans to overlap. You might purchase term life policies that have a 10 year term and 30 year term, both for 250,000. But for the first 10 years, when they both would overlap, you would actually have $500,000 in death benefit coverage. Perhaps you are just trying to cover the next ten years when your spouse would not be working or during the time your 10 year old child would be a minor, or maybe you need extra protection while your children are in college. By having a flexible term life portfolio, you can tailor coverage to fit your needs. Talk with an experienced life insurance agent if you have questions about how term life insurance can be tailored to fit your lifestyle, budget, and life insurance needs.
Types of Term Life Insurance
Within the term life insurance family, there are several types of polices. Which one you decide on depends on your needs and your budget.
- Level Pay Term: Level pay term policy premiums stay level for the entire term of the policy. If your premium is $35 a month when you take it out, it will continue to be $35 for the duration of your term.
- Annual renewable term (ART) life insurance: An annual renewable term provides coverage for one-year periods. You can renew most ART policies for successive one-year periods without having to provide evidence of insurability, (evidence that you are still in good health and have not terminal illness) up to a specified age or within a specified period. However, ART policies are for short-term needs and premiums increase annually upon each renewal. The premium is based on your age at the time of each renewal. So if you need coverage in your later years premiums may become unaffordable. Therefore BE CAREFUL before you buy! Understand this policy fully as you could end up without insurance.
- Decreasing Term: Decreasing Term is a term life insurance policy that decreasing in death benefit as the term increases. Known sometimes as mortgage insurance, one can purchase this to cover a mortgage. As you pay down the mortgage, the death benefit decreases. When you reach the end of the term, say 30 years, you have no more death benefit.
Term life insurance offers the option of buying insurance benefit only with a reliable payout in the event you die within the policy period. The low term life insurance premiums offer the flexibility to invest your money elsewhere or use it to purchase other household needs. Term life is a common and useful life insurance plan that warrants strong consideration when compared to permanent plans. To help you decide whether or not term life insurance is right for you, ask an insurance agent for assistance. When you are ready to start shopping for quotes and comparing offers, you can get stared at the Free Advice quote center today.
Read more about finding the right type of life insurance by clicking here.