What is term life insurance? This question comes up regularly from our clients so we thought we should take some time to answer it. Simply put, term life insurance is temporary life insurance.
Life insurance, for the most part, comes in two basic flavors, temporary and permanent. However, within those two basic flavors come many customized toppings allowing you to design your plan to your liking. There are even companies who offer FEGLI Life Insurance if this is something you wish to purchase. After reviewing this brief explanation you’ll understand what term life insurance is, how it works and the most common strategy in picking such a plan.
How Term Life Insurance Works
As we mentioned earlier, term life insurance is temporary life insurance. When you get a quote for term life insurance or purchase a term life plan you have to pick a duration period that the plan will remain active through. The most common duration periods you can pick from are 10, 15, 20 or 30 years.
If you pick the 20 year plan you have what is called a 20 Year Term Life Insurance plan. With this 20 year term life plan you will have coverage on your life for 20 years, as long as you continue to pay the premiums each year. If you outlive the term duration you chose (20 years in this example) then the policy premiums will increase each year thereafter your term duration period has expired. Due to the annually increasing premiums the year after your term period expires, most people elect to allow the policy to terminate once the duration period has ended.
Due to term life insurance being temporary and the fact that it does not generate any cash value, it is the most inexpensive form of life insurance one can buy. This means that people frequently purchase much more coverage when they get a term policy. It is common for someone to purchase $500,000 or even $1 million dollars of term life insurance. If you are young and in good health then these large face value policies can still be less than $50 a month in premiums.
Term Life Insurance Strategy
A common strategy among families who purchase term life insurance on income earners is to purchase a term duration period that will last long enough to cover ones income till the children have graduated from college or have become self-sufficient. In this case 20 year plans are great to provide that temporary coverage while your dependents are still dependent on your income.
Term Life Insurance Variants
Annual Renewable Term: This type of term life insurance renews every year and with each annual renewal the policy premiums increase making it more expensive each year that goes by.
Level Premium Term: This is the type of term life insurance we spoke of in this posting. The premiums are level each year and remain the same for the entire term duration period you purchase. However, once you go beyond the term period purchased the premiums increase each year you keep the policy active beyond the term duration period you purchased.
Return of Premium Term (ROP): ROP term works just like a level premium term plan except that once you reach or complete the term duration period you purchased you get a return of the premium for all the money you put into the plan over the life of the policy. For example, let’s say you bought a 10 year term life insurance plan and after that tenth year, you have put into that plan a total of $10,000 in premium. Once that tenth year is over the $10,000 you paid into the term life insurance plan over the 10 years is returned to you.
Simplified Issue Term: You can get approved for simplified issue term life insurance if your answers to the questions on a health questionnaire. These policies are usually less than $100,000 in face value and do not require a medical examination.
These policies are a great option for anyone that’s been declined for life insurance in the past because of their health, but they are going to be more expensive and probably won’t get enough insurance coverage. Not having enough life insurance is one of the worst mistakes that you could make for your loved ones. It would leave your family with leftover expenses and no money to pay off those bills. Even if you’ve been rejected in the past, we can help you find a company that is going to accept you for a traditional term insurance plan.
Is a Term Life Insurance Policy right for you?
When you’re shopping for life insurance coverage, it’s vital that you get the best plan for your loved ones. It can be difficult to decide which kind of plan is going to work best for you. There are several questions that you can ask yourself to determine if a term insurance plan is going to be right for you.
The first question that you should ask is, how long will you need life insurance? Life insurance needs are going to vary based on the family. If your children are about to graduate and start earning a paycheck of their own, which means that you won’t need life insurance much longer. In that case, a term insurance plan could be an excellent option for you. You can buy a term insurance plan in a variety of lengths.
Another question that you’ll need to ask yourself is if you will want to reapply for coverage in the future. If you’re worried about losing life insurance, then a term insurance policy will not be the best option. Because these plans have an expiration date, you will lose life insurance protection in the future. In that case, a whole life insurance plan is going to be a better option for you.
You’ll also need to look at your health and determine if you’re healthy enough to be approved for a term insurance policy. Before the insurance company accepts your application, they are going to require that you undergo a medical exam. If you’re in poor health, or you have several pre-existing conditions like diabetes or cardiovascular complications, then you could be declined for insurance coverage. It’s important that your family has the protection that they need, regardless of your health. If you’ve been declined in the past, don’t assume that you can’t get qualify insurance at an affordable price.
Getting Affordable Life Insurance Coverage for a Term Plan
One of the most common reasons that people don’t buy life insurance is because they assume that it’s going to be too expensive, but in most cases, that couldn’t be further from the truth. There are several ways that you can ensure that you’re getting the best rates available.
The first thing that you should do is eliminate any tobacco that you currently use. If you’re listed as a smoker on your insurance application, you’re going to be facing much higher insurance premiums. In fact, smokers are going to pay around twice as much for life insurance versus what a non-smoker is going to pay. If you’re wanting to get the most affordable term life insurance policy, then you’ll need to kick the cigarettes to the curb.
Another way that you can lower your insurance premiums, is by improving your overall health. The results from the medical exam are going to play a major role in how much you pay for coverage. If you want to save money, improving your health can help you save hundreds of dollars on your plan. Starting an exercise program and sticking to a healthy diet can help you lose weight, lower your blood pressure, lower your cholesterol, and reduce your risk of being diagnosed with other severe health complications.
The best way to ensure that you’re getting the lowest insurance rates is to work with an independent insurance broker. Unlike a traditional insurance agent, our independent insurance agents work with dozens of highly rated companies across the nation, which means that we can bring all of the best insurance rates directly to you. Every insurance company is different, which means that you could get drastically different rates depending on which company that you get the quote from.
Term Life Insurance – What You Need To Know
Life insurance is the best investment that you’ll ever make for your loved ones. It’s one of the only ways that you can ensure that they will have the money that they need, regardless of what happens to you. If you have any questions about term life insurance coverage for yourself, your spouse, children or even if you are looking for life insurance coverage on your parents, please contact one of our agents today. We would be happy to answer those questions and ensure that you’re getting the best plan to meet your needs. Don’t wait any longer to get the insurance coverage that your family will need.