Since it is one of the most popular types of life insurance policies available, many people are wondering just how does term life insurance work exactly? Most people are not very familiar with life insurance in general, so it is common to have some misconceptions and misunderstandings about some of the finer details. Here we will talk about what exactly term life insurance is and why it might be right for your situation, along with some pros and cons of choosing this particular type of policy, and compare it to a few other examples of policies.
Understanding Term Life Insurance
What is term life insurance? When you get right down to it, it is actually very simple. First you choose a term length, typically anywhere from 10 - 35 years. Next, you choose a face value, or death benefit amount, for the policy. If the policy holder dies within the specified term length, then the beneficiary is paid the death benefit from the policy. At its core, that is really all there is to it. Just simply pick a time frame and an amount. The straightforwardness of term life policies make it a very popular choice, and it is easy to see why.
Of course, there are some finer details that often come into play. Most companies have an age limit that they will only cover people up to, typically anywhere from 70 - 85 years old. This means if you were a 60 year old looking for a 25 year term policy, you may be limited to only selecting from the companies that offer term policies that long. There are also some other things to be made aware of, such as the waiting period. This is a period of time in the beginning of a policy, usually the first two years. If the policy holder dies in the waiting period, then the full death benefit may not be paid out, depending on the circumstances, the policy and the insurance company itself.
Why Term Life Might Work For You
Term life is a great choice for many people, regardless of age, health or financial situation. Their very low premium prices make it very budget friendly way to get some protection, and if you are young and in good health, the prices are even lower. It is also a good type of coverage if you have an expense that you know you will only have for a specific time period, such as a mortgage, then you could get a term life policy to match the length and ensure it will be paid off, even if you aren't around anymore. Or if you just recently have a child, a 20 year term policy is a great way to ensure they are taken care of until they reach adulthood.
Term Life Insurance Basics
- Has a term, or a designated time period of coverage
- Has a face value or death benefit, which is the amount paid out when the policy holder dies
- Can usually be converted into permanent insurance down the road
Other Options for Coverage
While term life is a very flexible and popular life insurance option, it isn't always the best choice for everyone in every situation. One of the other most common types of life insurance are the types of permanent policies, such as whole life. What are the differences between whole life and term life insurance? The biggest difference is that whole lasts your entire life, rather than a term you set at the beginning. Permanent types are also more expensive every month, but they do generate a cash value on the policy that you can even sometimes withdraw or borrow against.
Comparing Term vs Permanent Life Insurance
|Price||Usually cheaper||Most time more expensive|
|Duration||You specify when you take the policy out||For the rest of your life|
|Other benefits||Easy to understand, can often renew or change to permanent||Carries cash value, no need to renew coverage|
Preparing to Buy Life Insurance
When you do decide it is the right time to get life insurance, one of the most important things you should do before seeking out life insurance is to get a good understanding of your own personal financial situation and needs, as well as a good estimate of the costs you will need to cover. This will help you get a good idea of how much life insurance you need, as well as what type of policy you should look for.
It is very beneficial to talk to an expert life insurance agent to help guide you through this process. They will be able to not only understand the difference in between all these policy options and which is the best for you, but also be able to help you estimate exactly how much you need. Fill out our quick and easy form right here on the site and we can connect you to an agent who can help you with every thing that you need to find the best policy.