A term life insurance policy is one of the simplest and purest forms of life insurance. Term life insurance only involves you paying a premium for a specific period of time, usually anywhere between 10 to 30 years. If you pass during that time, a cash benefit is directly paid to your beneficiary. If you don’t pass during this time period, the term life insurance is then renewable.
Term life insurance is usually less expensive than a whole life insurance policy, even after the renewals. However, unlike whole life insurance, term life insurance does not offer a cash value or payout after the term expires. There is no value to the term life insurance policy other than the death benefit.
Of course, making this decision is a big deal, so let’s walk through this policy a little more to help you make the best decision.
Term life insurance is simply a contract between the owner of the policy and the insurance company, stating the owner will pay a premium for a specific term, and, in return, the insurance company promises to pay a death benefit to the beneficiary upon the death of the insured. Usually, the term length is decided by the owner of the premium, leading to the question: “How long do I need coverage?” If you have children, it is wise to set a term long enough to see them out of the house or in college. If you do not, it is usually wiser to purchase a longer term and stay on the side of caution. One of the last major components of life insurance is choosing a beneficiary. This can be one or more people, but it is important to determine who they are and the percentage they will receive.
As you talk to different insurance agents, you will hear of different types of term policies. These will all provide the same baseline insurance plan, but with different bells and whistles. One of the most common term policies is the level premium, which is the simplest policy as it stays the same over the period the policy is active. Next is the yearly renewable term, which covers you for a year at a time, but, when it is time to renew, you may notice higher premiums. Then, there is the return of premium policy, which pays back a portion of your premiums if you live to the end of the term policy. However, with this policy the premiums may be higher. Lastly, the convertibility term policy actually allows owners to convert their term life insurance policy into a whole life insurance policy, which is something to consider depending on your situation.
If your family is young, it will take many years of income to fully support your children until they reach adulthood. It is important to make sure your policy is sufficient enough to provide for them in case something happens. There are a few general rules to help people determine how much life insurance they need. One of the safest cushions to fall back on is a policy worth ten times the owner’s salary, plus college expenses for the children. Another cushion is using the DIME formula, which stands for debt, income, mortgage and education. By totaling all these factors together, you are able to see the amount of coverage you may need. These are simple ways to calculate the amount your family may need should the worst possibility occur.
Still unsure about if term life insurance is right for you? Care Financial can assist with that! As a family run business with over 15 years of experience, we know what it means to protect the ones you love, and we want to help you make the best decision for when the worst happens. Call us today to speak with an insurance expert and we will help decide what the best course of action is for you!