Term Life Insurance Explanation
Here's a term life insurance explanation to help you understand what term life insurance is, and how it works.
Term life insurance is a form of life insurance coverage that is considered temporary or short term life insurance.
Term life insurance is issued for a specific number of years to provide affordable protection for your short term needs. The term of the policy is the length of time the life insurance policy is in force.
Term life is offered for 1-40 years. Usually term life policies are available for 10, 15, 20, or 30 years of coverage.
Term insurance does not build cash value inside the policy. There is no investment feature within the term life insurance policy.
Term insurance plans are "Pure Protection" because you pay only for the life insurance.
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How Does Term Life Insurance Work?
You choose a term (number of years) that you want life insurance. You can choose 10, 15, 20 or 30 years of protection from most insurers, depending on your age.
You choose an amount of life insurance coverage, and a beneficiary who would receive the death benefit of your policy if you pass away.
For Example: John buys a 10 year $100,000 term life insurance policy for an annual premium of $400, naming his wife as beneficiary. John pays $400 per year for his coverage. If John passes away during the 10 year term his wife would receive $100,000 which is usually paid free from any federal tax.
However, if John outlives the term of his policy, and is alive after the 10 years, his policy would expire, leaving him with no life insurance.
At that time, John could purchase a new term life insurance policy, but the new premium would be based on his age and health at that time.
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What are the Benefits of Term Life Insurance?
There are Several Benefits provided by a Term Life Insurance Policy, including:
- Affordable – Permanent life insurance usually costs 2-3 times more than term life insurance.
- Flexible – You can choose the term you need coverage – 10, 15, 20 or 30 years.
- Instant Quotes – You can compare free term life insurance quotes online from top-rated insurers with no obligation.
- Maximum Coverage – You can afford more coverage because the rates for term insurance are 50% lower than the were 10 years ago.
Advantages of Term Life Insurance
- A term life insurance policy can cover financial obligations that will decrease over time, such as, a home mortgage or college tuition.
- When you’re young, premiums are usually much lower than those for permanent life insurance.
- Term life insurance offers you the maximum amount of protection for the lowest price when compared to whole life insurance.
Who Buys Term Life Insurance?
Term life insurance may be a good option for people of all ages. Why, because it’s affordable, flexible and easy to buy. Term life offers you the most coverage at the lowest cost.
Many young couples, families with children, and people on a budget, choose term life insurance because it meets their needs, and fits their budget.
Whether you’re just buying your first home, having your first child, got a promotion at work, or planning your child’s college education, term life insurance can provide the financial security your family needs, at a price you can afford.
The proceeds from your term life insurance policy can be used to help pay for important financial obligations, such as, your mortgage, living expenses, vacations, debt, final expenses, your spouse’s retirement, or your child’s college education.
If you have someone who relies on you for financial support, you need life insurance, and term life insurance can provide the financial protection needed at affordable rates.
What Types of Term Life Insurance Are Available?
There are several types of term life insurance for you to choose from, including level term, decreasing term, return premium, renewable term, convertible term, and term life insurance with no exam required.
Level Term Life Insurance – Your life insurance premiums and coverage stay the same for the entire term of your policy.
Insurance Fact: Based on a study conducted by the Insurance Information Institute in 2003, 97% percent of all term life insurance policies purchased were level term life insurance.
Decreasing Term life Insurance – Some people buy decreasing term insurance to provide protection for their outstanding mortgage loan. Decreasing term has premiums that remain the same throughout the policy term while the coverage amount decreases each year.
Return Premium Term Life Insurance – You may receive your premium back after your policy expires, but the premiums charged are usually much higher than level term life insurance policy.
Renewable Term Life Insurance – Allows you the option of renewing your term life insurance policy when it expires, without requiring a medical exam.
Convertible Term Life Insurance – Provides term life coverage which may be converted to a permanent life insurance policy by a specific date, without requiring a physical exam to qualify for the new permanent life insurance policy.
Term Life Insurance with No Doctor Exam – Offers you the chance to purchase term life insurance without having to take any physical exam, blood test, or urine test.
Life Insurance Terms
Coverage or Face Amount - This is the benefit amount, the amount of life insurance protection you choose for your policy.
In Force - The term "in force" describes the status of your policy. In force means your policy premiums are currently paid, and you are currently protected by your life insurance policy.
Insured - The "insured" is the person who is covered by a life insurance policy. If you buy a life insurance policy with yourself as the insured, your life is insured. If you pass away during your policy term, your beneficiary would receive the death benefit from your policy.
Premium - The "premium" is the payment you make for your life insurance policy. For example an annual premium of $250 means you pay $250 once per year for your policy. You can usually choose to pay your premiums monthly, quarterly, semi-annually, or annually.
Rate Class - The "rate class" is the classification assigned to your policy that indicates what you will pay for your life insurance coverage. Your rate class is determined after you complete the application process.
Term or Length of Coverage - The length of time, or term, you choose to have life insurance coverage. Usually, you may choose from 10, 15, 20 or 30 year terms.
How Can I Get Term Life Insurance?
There are several things to consider before buying your term life insurance policy.
How much life insurance do you need? To find out, you can use the term life insurance calculator. You answer some questions and the calculator gives you an instant, accurate amount of life insurance that should meet your needs.
According to the American Council of Life Insurers, beneficiaries won’t have to pay federal income taxes on the money they receive from a life insurance policy.
How much can you afford to pay? Make sure you know what you can afford before purchasing a policy, so that you can continue to keep your coverage "In Force", paying the premiums, and protecting your loved ones.
How long do you need life insurance? Term life insurance is temporary life insurance. if you want lifetime coverage, you may want to consider permanent life insurance. However, if you want term life insurance, decide how long you need coverage, for 10, 15, 20 or 30 years.
What is a Financial Rating? - When you request your free life insurance quotes, they will indicate the financial strength rating of the insurance company. AM Best Company is an independent financial rating service (since 1899), and they issued financial ratings for insurance companies. A financial strength rating of "A" (Excellent), or better, means the insurer is financially sound, and should be able to pay their claims.
How much will term life insurance cost? To find out, you can request and compare free term life insurance quotes from top-rated insurance companies online.
The reason you want to compare several rate quotes is because prices can and do vary by up to 50%, or more, between life insurance companies. That means, by comparing several quotes, you may be able to save hundreds of dollars per year on your term life insurance plan.
How Can I Buy Term Life Insurance Online?
If you want to purchase term life insurance today, you may be able to qualify for coverage, depending on your health.
You may qualify to Buy term life insurance online offers you the option of buying up to $500,000 of level term life insurance coverage for 10, 15, or 20 years, without any physical exam required.
One major benefit of term life insurance is that the rate stays the same for the entire level premium term, for example, 30 years. Even as you get older, or your health declines, you pay the same low rate for your term life insurance policy.
Term Life Insurance Quotes
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