Term life insurance is one of the most affordable types of life insurance available. It provides coverage for a specific period (the “term”), and pays out a death benefit if the policyholder dies during that term. Most term life policies have a fixed premium, which means that the cost of coverage remains the same for the entire duration of the policy.
Why Go With Life Insurance?
Life insurance provides financial safety for your loved ones if the worst were to happen. In exchange for monthly or yearly premiums paid to a life insurance company, you have peace of mind knowing your family would receive a payout if you were to die.
The proceeds from a life insurance policy can be used by your beneficiary to help cover important expenses including burial and funeral costs, as well as the mortgage, childcare, future education expenses, and other financial obligations.
Who Needs Life Insurance?
To understand if you need life insurance, ask yourself, “Does someone rely on me for their financial well-being?” That could be your spouse, young children at home, a business partner, or even your parents.
If in your head you answered “yes” to that question (or out loud, we’re not judging here), then you probably need life insurance coverage from a reliable insurer. The good news is: that life insurance is simple to purchase and probably a lot more affordable than you think.
How Does It Work?
Term life insurance is a simple, affordable type of life insurance that covers your family for a set period — typically available in 10, 15, 20, 25, or 30-year term lengths. With term life coverage, if you were to die during the term period, your beneficiary receives a payout (called a death benefit) that provides a financial safety net when your family needs it most.
Term life insurance policies sold by certain carriers can offer guaranteed level premiums. This means your monthly rate is locked in and will not change for the length of the term. If your monthly premium payment for a 20-year term policy is $23 when you sign up, then it will be $23 next month, next year, and so on.
Is There Money Back At The End of Term?
So let’s say you get term life insurance. You might be wondering what happens if you outlive the term length of your policy. Do you get your money back at the end of the term?
Once your term length is up, coverage either ends or can be extended (albeit at a higher premium). Your family only gets money from the life insurance company if you die. That’s why not seeing that money again is the best-case scenario: it means you’re still alive. Like car insurance or health insurance, you’re paying for peace of mind in case something does go wrong.
Is There a Return Of Premium Policy?
Return of premium (ROP) life insurance works exactly as the name indicates: as long as the insured outlives the initial term length, the life insurance company returns most or all of your premiums paid.
So why don’t we hear more rave reviews about this coverage option? According to insurance industry research group LIMRA’s 2017 U.S. Retail Individual Life Insurance Sales Survey, as of March 8, 2018, ROP coverage represents only 2% of all annual term life insurance sales.
While the return of premium is seemingly a win-win, that coverage comes at a price. Specifically, a higher premium. Typically, people choose a traditional term life insurance policy over a return of premium policy because the premium rates are lower, and they’d rather keep the extra money in their pockets each month. With the return of premium life insurance, you’re essentially holding a portion of your savings with a life insurance company (in an interest-free account) instead of using the money as you see fit over the years.
Term Versus Whole Life Insurance
Learning about term life insurance begs the question, “What other types of life insurance are out there?” There’s term life, whole life, indexed universal, guaranteed issue, accidental death…
The list goes on. However, there are two types of life insurance that you need to understand: term and permanent.
Unlike a term life policy, permanent or whole life insurance coverage lasts for the rest of your life and has a cash value component that grows over time as you pay premiums. Permanent coverage can be at least 10 times more expensive than term, with two common types of permanent coverage being whole and universal life.
Bottom Line
There’s a lot to unpack when it comes to life insurance, but the bottom line is this: Term life insurance is an affordable way to financially protect your family in case of your untimely death. If you have people in your life who rely on you financially. Give us a call anytime and we can go over your options.