Oftentimes parents wonder how their families will continue to manage in the unfortunate event that they are no longer around to provide for them. When you combine factors such as mortgage payments, childcare, utilities, clothes, education, and putting food on the table, it can be difficult to fathom any type of financial security. Parents will oftentimes think about getting life insurance coverage to protect against the unexpected. But even so, there are so many types of policies out there, how could you possibly know which one offers the best possible outcome for your family? Well, I understand that concern and I want to help. Let’s take a deeper look at term life insurance.
Term Life Insurance, What is it?
Term life insurance exists to provide your family financial security and protection in the unfortunate event of your death. With a term life insurance plan, you select the benefit payout and the duration the policy should remain in effect. Typically, benefit payouts that parents choose the most range from $100,000 to $250,000. If you pass away while covered under a term life insurance policy, your beneficiaries will receive the entire benefit payout. When the term ends, that’s it, the policy expires. There is a required monthly premium that you will have to pay as per the Term life insurance policies. If you stay up to date with your payments, the policy remains in effect until it reaches its termination date.
Term life insurance is sought after by families because the premiums are generally lower than other life insurance products, like whole life coverage. In some cases, these policies don’t require a medical exam and they can be relatively simple to set up.
One downside to term life insurance is that there is no value accumulated via the premiums you pay in during the term of the policy. After the policy expires, there is nothing paid back to the policyholder. A policy may be drafted that allows for the return of a portion of the premium if the insured is still living during the time that the policy expires and they are known as “return of premium” plans. They typically come with higher monthly premium payments when compared with a standard-level term plan.
Types of Term Life Insurance
Note that there are a few different types of term life insurance policies available for you to choose from.
Annual Renewable – policies are one-year life insurance plans that are renewed annually for a predetermined period. Because these premiums are calculated using one year, this means they tend to be lower than level term plans, which calculate their premiums on the full length of the policy. During each renewal period, the premiums are adjusted. If you are looking for a good option to obtain short-term life insurance coverage, then the annual renewable plan is what you’re going to want to look at.
Level term – is the most common term of life insurance policy that’s available on the market today. Level-term life insurance pays out the same benefit no matter when the death occurs. These plans generally range from 5 years to 30 years. The number of monthly premiums paid under a level term plan will stay the same until the end of the policy period.
Decreasing term – means the death benefit that will be paid out decreases over time. This plan assumes that the monthly expenses of a family will drop over time as children grow up and move out and mortgages are paid off. Premiums under this policy are also lowered over time to better accommodate the decreased benefit.
Group term – Some employers may offer term life insurance benefits to their employees as a group. Generally, the employer takes care of the cost of the premiums but these policies don’t usually offer the same range of benefits to an employee versus a policy they can purchase on their own.
Convertible – means that the insured can convert their term life insurance policy into a whole life policy. This is dependent on the plan and can be done either while it’s in effect or during its expiration. There is a good chance that the insured may be required to pay a set amount to convert the policy and then also have to make higher monthly premiums under a whole life insurance plan.
How is my Premium Determined?
Insurance companies take a look at several factors when determining your monthly premiums. These factors include:
- Age – Your premiums will be higher the older you are
- Gender – Women typically pay less than men
- Lifestyle – If you smoke, drink alcohol regularly, or engage in dangerous activities, such as motorcycles or speedboating, your premiums will likely be higher
- Location – It’s possible that where you live can influence your monthly premium amount
- Medical exam and health history – If you have a condition that could influence the length of your life, your premiums could be higher. Things such as high blood pressure, diabetes, or chronic illness can also raise your premiums.
Premiums are typically paid monthly, although some carriers may allow for semi-annual or annual payments.
Who Should Get Term Life Insurance?
Families that have dependent children should definitely get term life insurance. Not only will these policies provide funds for your family to cover things like mortgage payments, utilities, childcare, and groceries but they can also provide financial support for your children’s future education.
If you are sitting there thinking about how your family will survive financially without you, look into life insurance policies that fit your lifestyle. It’s a quick and low-cost way to provide financial security and provide peace of mind in the event of your untimely passing.