Term life insurance is a type of life insurance that pays a guaranteed death benefit in the event the covered person passes away during the term of the policy. Upon the term expiration, the policyholder can renew for an additional term, switch to a permanent coverage policy, or let the term life insurance policy lapse.
How Term Life Insurance Works
Insurance companies determine the premiums of a life insurance policy based on your age, gender, and health condition, and the policy’s value. The insurance company may also require a medical exam and information about your driving history, medical history, family history, occupation, tobacco use, and hobbies. This information helps insurance providers determine how risky you are as a policyholder.
In the event of your death during the policy term, your beneficiaries are paid the policy’s face value by the insurer. Beneficiaries can use this nontaxable benefit to cover healthcare costs, final expenses, mortgage debt, and more. When you renew a term policy at its expiration date, the insurer will recalculate the premium to reflect your current age. The only value of term life insurance policies is the guaranteed death benefit. This, in addition to a restricted time frame, makes term life the least expensive life insurance.
Types of Policies
There’s more than one type of term life insurance. The best policy depends on your unique needs. Level term policies offer coverage for a set period of 10 to 30 years and come with a fixed premium and death benefit. Yearly renewable term policies can be renewed annually with proof of insurability. As you get older, the premiums increase, which means it can become an extremely expensive policy. Decreasing term policies come with a declining death benefit based on a predetermined schedule. You pay a fixed, level premium for the life of the policy.
Once you determine the right policy for your unique needs, it’s a good idea to compare policies from different life insurance companies. Comparing life insurance policies ensures you get the best policy for the best price. SelectQuote makes it easy to find unbiased quotes on a range of insurance products from different insurance companies. With a SelectQuote term life insurance comparison, you can determine how much life insurance and which type of coverage is best for you. The right policy gives you peace of mind that your spouse and dependents will have the means to continue their lifestyles and take care of expenses after your death.
It’s a good idea to choose a life insurance company that offers flexible benefits at an affordable rate. Check to see if the insurer offers living benefits in the event you become seriously ill. Living benefits allow you to pay for medical expenses and medical treatments. Ask if the policy is guaranteed renewable once the level term reaches its expiration date. This is helpful if you still need life insurance but have health conditions. Some insurers allow you to switch the term policy to a permanent life insurance policy within a certain time frame. You should ask if you can adjust your coverage amount should your life insurance needs change.
Determining the right length for a life insurance policy is done by considering the debt or situation you want to cover. The industry-standard terms are five, 10, 15, 20, 25, and 30 years. The right policy amount matches the debts or financial obligations that would have been paid by your salary. You need to calculate the approximate amount necessary to allow your family to maintain their standard of living.
Benefits of Term Life Insurance
Life insurance brings you peace of mind knowing that your beneficiaries will be able to maintain their lifestyles and cover expenses after you’re gone. Term life insurance is popular among young families with small children. They can take out large amounts of coverage for low premiums so that the benefit can replace lost income upon the death of a spouse. Term life insurance is also a good option if you need specific coverage for a temporary time.
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