When planning for the unplanned the main goal is to provide financial support for your beneficiaries. All types of life insurance policies have premiums. Based on multiple factors, such as life expectancy, will specify the type and amount of life insurance coverage you chose. Term life insurance is a life insurance policy providing coverage at a fixed rate of payments for a limited time.
Term life insurance is the original life insurance, it satisfies claims against what is insured like health or auto, for the amount of time a premium is being paid. In the case of an event, there is a benefit being paid out. If there is no event it is then pure death benefits. Often term life insurance is provided to employees as group term insurance, it’s also available on an individual level, just does not build cash value as whole life insurance does.
Types of Term Life Insurance
Annual renewable term cover one year. They are guaranteed to renew each year for a set amount of years, with coverage periods varying from 10 to 30 years, or a set age and premiums increase each year.
Level term insurance is where the premium stays level for a certain number of years. After the time has completed the premium is likely to rise. The base of the premiums’ cost is based on the total cost of each year’s rate, plus an information adjustment. Therefore the longer the term of coverage the higher the premium. Most level term policies allow for renewal, however, they are not guaranteed and the policyholder may have to offer proof of insurability in order to get renewed.
Term life insurance depends on current health and age, as time progresses increase due to the risk while taking into consideration the length of term coverage, face amount (death benefit) and the premium. Each insurance company combines these factors in different ways to construct their policies, which they can also change.
How Term Life Insurance Works
The benefit after death goes directly to the beneficiary on the policy. The benefits are then under the discretion of the beneficiary but can be used for a number of different financial obligations. Often beneficiaries are depended on the policyholder and no longer capable of that. The benefits could be used as a measure of financial security; whoever takes out term life policy usually factors expenses into their coverage needs. Insurance underwrites a policy and determines the premiums that are to be paid.
- Family and dependent expenses
- Debts, including mortgages and consumer debts
- College educations
- Funeral expenses for the policyholder
- An annuity
- Expenses needed for employment
If you die during the covered term your beneficiary will receive a death benefit but if you do not die, no death benefit will be given, unlike whole life insurance. The proceeds from the term policy may be paid out as an annuity or as a lump sum. An annuity is paid overtime in regular payments, either for a set term or over the beneficiaries lifetime
Term Life Insurance vs. Whole Life Insurance
Permanent (whole) life insurance policy covers you for life as long as you pay your premium payments. The most traditional form of permanent life insurance is whole life insurance. Once approved for the policy there can be no cancellation or fluctuation in cost. Over time the policy develops cash value, which is a return the insurer accumulates profit every year, supplying a sufficient sum of money later in years to pay promised death benefit while keeping the premium levels.
How To Get Started on Planning for Term Life Insurance
- First, begin by estimating your life expectancy
- Then, determine or calculate how much life insurance you need
- From there, calculate how much life insurance your family would need tomorrow to fund their future living expenses and various life goals if you were no longer there
- Finally, go online or contact an agent or broker to get some quotes on a type of life insurance from a strong insurance company.
Learn More about the Financial Fitness Group
The Financial Fitness Group, a purveyor of comprehensive online financial education programs, has the many resources needed for individual financial success. We offer unbiased online, interactive instruction in personal finance, financial planning, investing, and much more. Learn more about our online resources or schedule a demo today.