No one wants to think about a possible untimely death, but planning for any future outcome is the best way to protect your loved ones from any financial burden of your death. Term life insurance is a type of life insurance that lasts for a certain number of years, called a term, before the policy expires. If you die before the term is up, your beneficiary receives a lump sum of money (tax free) to use for funeral expenses, pay bills, or any other use.
Term life insurance differs from whole life insurance in that it doesn’t come with a tax-deferred savings component called the cash value. The cash value of a permanent life insurance policy accrues interest and can be used by the policyholder while they are still alive, while also usually making the life insurance policy costlier.
Purchasing term life insurance is simple and affordable, making it a popular way to create a financial safety net. Term life insurance is very straightforward, and there are only a few things to know to start understanding it.
Understanding the term
With term life insurance, you must understand how long the policy is in effect. Term periods usually last anywhere from 10 to 30 years. During this time, you pay a monthly or annual premium to keep the policy active. Once the term is up, you no longer make payments and the policy expires. Depending on the type of term life insurance you have, the premium may stay the same for the duration of the policy, increase over time, or decrease over time in rare cases.
What happens if your term expires
Life insurance is intended to protect your loved ones from financial obligations in the event of your death since you are no longer around to provide for them. Life insurance makes sense if you’re still paying off a mortgage, saving for retirement, or raising kids. But eventually these financial obligations will go away – when you’ve saved enough for retirement, paid off your mortgage, and the kids have grown and have families of their own. Outliving your term life insurance policy is hopefully part of the plan.
What determines life insurance costs
Since term life insurance protects your loved ones for a set period of time and not your entire life, term life insurance rates are much cheaper than whole life insurance policies. In general, life insurance costs are determined by:
- Health – the more likely you are to die while the policy is in force, the more expensive it will be. Therefore, those with a family history of medical conditions such as heart disease or diabetes, have risky jobs or hobbies will pay a higher premium.
- Age – Older policyholders will pay more than younger ones. And life insurance costs increase at a rate of about 8-10% each year.
- Coverage amount – The larger the death benefit amount, the more you will pay.
- Term length – the longer the policy is in effect, the more expensive it will be.
If you provide for anyone who is financially dependent on you and you don’t have enough money set aside to provide for their needs should you die tomorrow, term life insurance is more than worth the piece of mind you’ll have should something happen to you. And since term life insurance is affordable and simple, it’s easy to fit into your current budget and future financial strategy.
With the current uncertain climate of COVID-19, now is an opportune time to look into term life insurance. We would be happy to assist in your search and work to protect your good life. Contact us today for a free quote.