All the Juicy Details on Term Life Insurance
(When you don’t need insurance forever, just for a while)
You don’t have to be a five-buck boardwalk psychic to know that every life will come to an end. Which is why you really have no excuse to not be prepared when that time comes. Especially for your family’s sake. But sometimes life insurance can get a little, or a lot, pricey.
If life insurance options like perm, whole and universal don’t fit in your budget, there’s one solution that might be a perfect fit. And that’s a shiny new (for a limited time only) term life insurance policy. Find an independent insurance agent now, and get one-on-one consultation and affordable options for the best coverage for your unique needs.
What Is Term Life Insurance?
First of all, we should tell you that under the big ol’ umbrella of life insurance, you pretty much have two different flavors: perm and term.
- Perm (also called ‘permanent’) life insurance: Just like it sounds, this lasts as long as you do. You keep paying your premiums, and it keeps going. One of the most popular forms is whole life. It offers a fixed premium from start to finish. And works like a savings account, accruing money that you can even borrow against with a loan.
- Term life insurance: It’s kinda like yogurt. It’s really good for you, but it always comes with a firm expiration date. Here, you get life insurance for a set period or “term” (commonly 10, 20 or 30 years) that you decide. Your premiums are fixed for the entire length of your term. And it tends to be considerably less than permanent.
With both varieties of life insurance, when your ticket gets punched, your chosen beneficiary receives the full death benefit to handle any debt and IOUs that may have been left behind.
What Does Term Life Insurance Cover?
Life insurance is different from a homeowners or auto policy, in that it doesn’t cover specific situations. A policyholder will select the amount of life insurance they want, then when their bucket is kicked, their beneficiary receives the full payout in the manner in which they choose (i.e., annuity, lump sum, etc.).
From there, they can do whatever they want with the money. It’s usually a good call to choose someone you can trust who doesn’t spend all their money on Beanie Babies. Most often, the money is used for things like funeral expenses, medical bills, or setting up a trust for any young children.
Why Should I Buy Term Life Insurance?
Most important is just that you have life insurance. Any life insurance. The type you buy is based entirely on your needs and means. If your situation demands a larger benefit but your budget doesn’t have a ton of wiggle room, then term life insurance might be the right option for you.
Just like in this scenario:
Jim is a married father of 6 children. They live in a new-ish home and he’s the family’s sole breadwinner. If he were to pass away suddenly, his wife would have an immense financial burden on her hands.
For Jim, a term life policy for 20 or 30 years would get the kids out of school and to the point where hopefully the home is paid off. At that point they can look at other life insurance options or continue the existing policy, but at least they had what they needed when they needed it.
How Much Does Term Life Insurance Cost?
Depends. How old are you? How’s your health? Age and health are two of the strongest factors that go into the cost of your premiums. Insurance companies have all sorts of pictures, colored graphs and yummy pie charts.
When you apply for a policy, they look to see where you fit based on the physical shape you’re in and the terms you want. And that’s how premiums are born. The good news, again, is that your premiums never go up. And rates are usually much lower than a standard permanent policy.
What Happens When My Term Life Insurance Ends?
Somewhere in the last 18 months or so of your policy’s life, you’re probably going to get a letter from your provider. That letter lets you know your policy is about to expire and that you’ve basically got three options:
- Renewal: Add a new term to your policy that will give you the same benefit amount. Problem here is that it will take into account your new age and your rates will be much higher. But, say you developed some serious illness, you may not be approved for a whole new policy, so you may just want to take what you can get.
- Convert to a permanent policy: This is perhaps the easiest option. Here you would roll your policy over into a nice, permanent policy with the same benefit that will last as long as you do. Again, premiums would go up, but you can usually assume that at this point, your kids have grown, your house may be paid for, and the costs fit your budget much better.
- Terminate: Maybe you’ve already prearranged your funeral and you’ve got things all sorted out for after your passing. In that case, you may find yourself not needing the policy anymore. Or you can terminate your policy and purchase a new type of insurance or a new benefit limit that fits your needs.
The ball’s totally in your court here. Lives change on a day-to-day basis. Who knows what you’ll need at that point? Our goal here is simply to let you know that you’re not in deep water if you outlive your term life policy. In fact, there are plenty of great options out there that you can talk to your agent about. Plus, you’re still here, so that’s pretty great, huh?
What Happens If My Spouse and I Pass Away Together?
In all the prepping and planning for your own death, it’s easy to forget the obvious. What if you and your spouse were in a fatal car accident? Nothing would necessarily change with your life insurance, but you probably have your spouse as your beneficiary and vice versa. If neither of you are around, that’s when having an estate plan is key.
Talk to an estate attorney and they will walk you through every step of the process to make sure that when you pass away, any children are financially supported. If you’d like a little more information about estate planning, help yourself right here or talk to a licensed estate planner.