Taking out a life insurance plan is one of the most difficult and selfless acts a person can accomplish. You are contemplating the unknown, but you are doing it for the benefit of those who will be left behind.
However, navigating the maze of insurance terms and types can be daunting, to say the least. That's why we're going to discuss one type of life insurance many don't know much about.
Everyone understands what regular life insurance is, but what is term life insurance?
Read on to find out.
Necessary Terms
Let's cover those grisly terms before we bite into types. Here are the major vocabulary words for Term Life Insurance 101:
- Beneficiaries - Any person who will receive the insurance proceeds in the case of the policyholder's death.
- Payout (death benefit) - The amount beneficiaries will receive if the policyholder dies. These are also referred to as policy proceeds.
- Premium - The amount paid (usually monthly) for the policy.
- Free Look Provision - A duration specified by the insurer in which the policyholder can "return" the policy for a full refund.
What Is Term Life Insurance?
There are two basic types of life insurance: term and permanent.
Permanent
Permanent insurance is very complex. The most common type is whole life insurance.
These plans cost more than term-based ones, but they last for a policy holder's entire life. Generally, you won't pay taxes on these types of insurance plans and they should include investment options.
Term
Term life insurance only lasts for a specified time. Usually, it is referred to as "pure life insurance."
Pure life insurance plans are generally taken out for a period of 10, 20, or 30 years, but some institutions offer one-year or even five-year plans. If you die prematurely, your beneficiaries will receive the payout. You can choose how much you would like the policy to be for.
Term insurance does not have the advantage of accumulating cash value. What will be provided to the beneficiaries will remain the same regardless of the policy's length. With these, you will enjoy low premiums that will rarely, if ever, change.
Advantages
Term life insurance has several benefits to policyholders.
Dependents
If you have children or other dependents who would suffer financially if you passed away, these policies are an affordable way to take that worry off your shoulders. The amount you select in your policy is guaranteed to go to the beneficiaries so they can be well taken care of if the worst occurs.
Flexibility
You have the option of choosing the policy's duration and cost. Because of that, term life insurance is an effective choice for many families. Ideally, the insurance will simply expire when you no longer need it.
Low Cost
Pure life policies also let you enjoy all their perks at a low cost.
A typical $250,000 policy amount will only cost $156 annually for a 20-year plan. The same amount can cost as much as $2,114 for a whole-life plan.
That means you'll have fewer worries that will cost less, too.
Policy Payout
Although you won't receive the accumulative cash provided in permanent life insurance policies, you can decide how much money should be provided to the beneficiaries. If you can calculate how much "bacon" you bring home and consider any other costs, such as childcare, this will give you an estimate of how much money your family would need in the event of your death.
You can choose the right amount. And that means you'll be assured they will do okay.
Free Look Provision Periods
Free periods are included in almost every policy. They give you time to mull things over and decide if this is the right choice for you and yours.
If you decide you don't want to make the payments or you'd like to change your policy, you can do so without any issues. Always check with your insurance company to see if they offer a free period and what the duration is, as any deadlines are determined by the insurer.
Straightforward Plan
Finally, term policies are simple. You don't have to worry about accumulating monies or investments. They are very straightforward plans, which make them easy to understand.
And that means a lot less stress when you're applying or choosing your policy.
Who Should Consider These Plans?
But is this really right for you? To find out, take into consideration these four questions.
1. Are you a parent?
Term life insurance policies are ideal for parents. They will no longer have to worry about what will happen to their children and spouse if they pass away. It's a method to ensure your family's security.
2. Do you have any short-term worries?
Furthermore, pure life policies are also great picks for anyone who needs life insurance for a short span of time, even if they don't have kids. If you're going on a year-long Safari or doing some extreme mountain climbing, for example, it may not be the worst idea in the world. Especially for the cheap price!
3. Would you prefer an inexpensive option?
Speaking of that price . . .
If you're tight on cash, but you still want peace of mind, that also makes a pure life policy the right option for you. These plans are much cheaper than permanent ones.
4. Do you want lifelong insurance, but can't afford it?
Similarly, if you would prefer permanent life insurance, but can't afford it right now consider a term life insurance policy.
Very often, insurance companies will offer to convert your term policy into a permanent one. Always make sure to check for this option when applying for life insurance.
Where Can I Get Further Help?
Right here! Our blog is loaded with helpful articles about everything from travel insurance to dental insurance. Our team of experts is more than willing to answer your questions and walk you through the different types of plans.
But since you read through our tips here and learned the answers to that brow-furrowing question, "What is term life insurance," chances are you already have a good idea of what you want.
Life insurance isn't just beneficial to your family; it's also one less thing for you to worry about. Give us a call today to get started on your application and give yourself the peace of mind you deserve.
