Ever wonder why term life insurance is so cheap? Do you understand how buying a low-cost policy can impact your family’s future? The following details will explain what a term life insurance contract is and whether it should be included in your long-term financial plan.
Term Life Insurance Explained
The basic principle of any life insurance contract is that the insurance company agrees to pay a certain amount, called the death benefit, to a certain party or parties, called the beneficiaries, after the death of a particular person, the insured.
When you buy a term life policy, you are usually both the policyowner and the insured individual.
- The owner of a term life insurance policy pays the bills and controls the paperwork. As a policyowner, you can add extra coverage, change the extras on the contract, assign new beneficiaries, or cancel the policy.
- The term life policy is based on the insured person’s life. The insured is involved only at the time of application, to get a physical examination, and at the time of death.
Term Life Versus Whole Life or Permanent Life
Today life insurers offer an array of policies and options. The two basic types of life insurance are term life and permanent life, also referred to as whole life.
| Characteristic | Term Life Insurance | Permanent Life Insurance |
|---|---|---|
| Length | Flexible term, usually 1, 5, 10, 20, or 30 years | Set term, from the time the contract is issued to the time the insured passes away |
| Cash Value | No cash value, policyowner cannot take out loans | Accumulates cash value as premiums are paid, cash accumulation can be used for policy loans |
| Purpose | To pay off debts and pay for the beneficiaries’ living expenses | To pay off debts, provide inheritance, and give charitable donations |
Because term life insurance and whole life insurance serve different purposes, the best financial plans usually combine the two. Term life is most often used to pay off mortgages, car loans, or personal loans. The goal is to ensure that the beneficiaries do not have to pay for the debts after the insured’s death.
For example, a family purchases a house for $200,000 on a 30-year mortgage. At the same time the mom and dad take out a 30-year term life policy with a death benefit of $200,000. If the parents pass away the next day, the life insurance company pays the death benefit, which pays off the mortgage and lets the children stay in their home. If the parents live a long life and pay off the mortgage, they can choose to cancel the policy, reduce the death benefit, or use the existing insurance for another purpose.
Do I Have to See a Doctor?
Insurance companies look at many factors when deciding how much to charge in annual premiums for a policy. One of the most important factors is life expectancy. People who are in good health pass less for term life insurance than people who smoke, have risky occupations, or have chronic health conditions.
The easiest way to assess a person’s health condition is through a medical examination. A doctor or paramedical professional asks about health history and activities and may use blood tests to determine the patient’s level of wellness. Because these exams are costly for insurance firms, they are generally only required for high dollar policies, elderly applicants, or people with questionable application responses. Otherwise, most men and women can get term life insurance with no exam.
How Much Does Term Life Cost?
The average cost of a term life insurance policy runs from $10 to $50 per month. Applicants who are older and/or have larger death benefits pay higher insurance premiums. Parents can get a term life contract for a child for about $2 per month. Middle-aged people frequently have term life insurance rates of $30 to $40 per month. Senior citizens may pay up to $100 per month for $500,000 of coverage.
| Raises Cost of Term Life Insurance | Lowers Cost of Term Life Insurance |
|---|---|
| High blood pressure
High cholesterol Smoking History of heart attacks, strokes, or kidney problems Family history of cancers, heart disease, or chronic illnesses Hazardous occupations or recreational activities, such as flying planes, racing cars, bungee jumping, skydiving, or scuba diving Risky driving behaviors resulting in tickets Frequent travel to dangerous locations, such as war-torn countries Credit history with bankruptcies, foreclosures, and a series of late payments |
Low blood pressure
Low cholesterol Non-smoking for at least one year No history of heart attacks, strokes, or kidney problems No family history of cancers, heart disease, or chronic illnesses No hazardous occupations or recreational activities Good driving history with no moving violations No travel to risky locations Excellent credit history |
Compare Term Life Insurance Quotes
Price, payout, and contract terms are seen as the most important criteria when choosing a term life insurance company. Savvy shoppers should also look at the company’s financial stability, which predicts whether a company has enough money on hand to pay claims and whether the organization will be around in 20 or 30 years when a current applicant finally dies. Customer service is enough important aspect, which can often be discovered through term life insurance reviews.
Buying term life insurance is just one way to live sweat-free. By comparing free life insurance quotes and signing a term life contract, you can take control of your financial future and stop unnecessary worry about what will happen after you die.
