A Guide To Term Life Insurance

During different stages of life, it may become prudent to start researching life insurance. For some, traditional life insurance shapes as the most appropriate solution. For others, term life insurance holds appeal. 

However, applying for term life insurance can feel overwhelming. With this in mind, it’s important to consider the different aspects, types and benefits of term life insurance before making any financial commitments.

Armed with all the information, you can confidently select the term life insurance policy that matches with your individual or family needs. Providing you with peace of mind as you go through life that your loved ones will be financially protected upon your death. 

Defining term life insurance

Also known as pure life insurance, term life insurance is a type of death benefit. Its particular characteristics mean that the policy will only be paid out to those entitled if the policyholder passes away throughout a specific period of time. 

If the policyholder does not pass away within the terms of the policy, new terms may be negotiated or a permanent policy initiated. However, if the policy is allowed to lapse, no death benefit will be paid out.

The difference between life insurance and term life insurance 

On the surface, life insurance and term life insurance policies seem similar. However, the only similarity is the fact that these policies both offer financial protection against death and other terminal illnesses. 

Key differences include the fact that a life insurance policy will cover the policyholder until their death. On the other hand, a term life insurance policy will only cover the individual should their death occur within a predetermined number of years. 

How term life insurance works 

When signing up for a term life insurance policy, there are a few factors that individuals must take into account. Firstly, the insurance company will decide the policy’s premiums and therefore the payout amount based on factors such as gender, age and overall health. 

It can be practice for the insurance company to conduct an exam or ask a variety of personal questions. These questions might pertain to driving habits and record, any current medications and smoking status. Family health history will also be documented. 

Based on the answers to these questions, the insurance provider will craft a policy complete with payout amount, premiums and duration. As such, if you were to die during the terms of the policy, there would be a payout. If the policy lapses before death, there is no payout.

The pros and cons 

Offering a tax-free death benefit, a term life insurance policy can be quite beneficial. Especially if you are looking for coverage when your partner is pregnant or your family is young. This is because a term life insurance policy will provide financial help should you pass away. 

With no penalty for cancelling, term life insurance policies also have the added benefit of being flexible. With this in mind, you could renegotiate near the end of the original term, or convert the policy to full coverage life insurance without undergoing an underwriting process.

Like anything in life, a term life insurance policy also has negatives that need to be considered. For example, the very nature of this policy is temporary and thus provides no permanent cover. 

It’s also worth noting that term life insurance has no associated cash value. Additionally, there is typically an age limit associated with such policies. This means that not everyone can access this temporary coverage. 

The different types of term life insurance

When it comes to signing up for term life insurance, there are different policies individuals can choose from. The first policy is commonly referred to as level term or level-premium policy and typically provides coverage for anywhere between 10 and 30 years.

In a level term policy, the death benefit and the associated premiums are fixed. As this policy must accommodate increasing costs, it is likely to cost more than other term life insurance policies. 

The second policy is the yearly renewable term. As the name indicates, the policy can be renewed yearly and has no specified term in relation to the policy’s duration. It’s worth noting that the cost of this insurance will increase each year in accordance with your age. 

There is also the decreasing term policy to consider. According to a previously agreed upon schedule, the benefit associated with the policy will decrease each year. As such, the policyholder pays a fixed premium for the policy’s entire duration. 

Choosing the right policy for you 

It’s human nature to shy away from thinking about death. However, during certain stages of life, thinking about this worst case scenario and being prepared can help family members in the long run.

Grief can be a heavy burden to bear. Add in worrying about finances and it can feel overwhelming. Providing security over a fixed amount of time, a term life insurance policy may just provide you with peace of mind.