Term Life Insurance Benefit

When you make the decision to purchase life insurance, you want to be sure you get the best policy for your needs.

In many cases, this may be a term life insurance policy. Here is a look at what term life insurance is, and some of its benefits. And be sure to compare policies using our FREE search tool above!

What Term Life Insurance Is

According to the California Department of Insurance, term life insurance provides insurance coverage for a specific period of time, known as the ‘term.’ The term may be a certain number of years, such as one, five, ten or twenty. Some term policies provide coverage until you reach a certain age, such as 65.

When you buy a term life insurance policy, you fill out an application that asks you questions about your age, health, family history and occupation.

Based on the answers you provide, and sometimes other information such as your medical records and driving record, the insurance company will assess your risk and determine what your premium will be.

As long as you pay your premiums, you will have life insurance coverage for the term of the policy. If you die while the policy is in force, the insurer will pay the face amount of the policy to the beneficiary you name.

Inexpensive Coverage

Term life insurance is the least expensive type of life insurance you can buy. According to Investopedia.com, a healthy, 35-year-old non-smoker can usually get a $250,000, 20-year term policy for $20 to $30 per month.

Premiums can vary depending on:

• Your age – the younger you are, the less your policy will cost,
• Your gender – women live longer than men, so they are less expensive to insure at the same age,
• Your health – if you smoke, have health problems or diseases, or if you have a family history of diseases such as cancer, high blood pressure or diabetes, your cost will be higher than if you were healthy, or
• Your occupation – people who work in high-risk occupations will sometimes have to pay more for insurance.

The Coverage You Need, When You Need It

Since term insurance is the least expensive type, it is often used for people who have a need for a large amount of life insurance, and may not have a lot of disposable income to pay for it. Term insurance is especially popular with young families.

While the chances of a healthy, young person dying suddenly are fairly slim, the financial consequences could be devastating.

For example, a young couple may have a large mortgage on their home, plus young children. Perhaps one of the parents stays home to care for the children, so only one parent works. If that parent were to die prematurely, the loss of that income could be catastrophic for the family.

As a young family living on one income, they may not have a great deal of extra money to pay a large life insurance premium. Term life insurance is ideal in this situation because they can get the coverage they need at a reasonable cost.

A note of caution in this situation: A stay-at-home parent should have life insurance coverage as well. When you consider the financial impact of a premature death on the family, take into account all the services provided by a stay-at-home parent, such as child care, cooking, cleaning and so on.

The cost to hire someone to do these tasks may be a lot more than you think, so it’s smart to have insurance coverage on a stay-at-home parent too.

Pay For Only What You Need

When you purchase term insurance, you are paying for insurance only for the period of time during which you need it. Here are some examples:

• If you have a thirty-year mortgage, you can take out a thirty-year term policy which would pay off your mortgage should you pass away at any time during those thirty years.
• If you have children, you can purchase a term policy to cover you until the children reach adulthood and can support themselves.
• You could purchase a term policy to cover you until you reach age 65, at which time your spouse could collect a Social Security or pension benefit.

Convert to Permanent

If you buy term life insurance and you are still alive when the policy expires, there is no cash value in the policy. It simply ends, and your coverage stops.

However, some term life insurance policies allow you to convert some or all of your coverage to a permanent policy, without having to show what insurance companies call ‘evidence of insurability. This means that the insurance company will not ask you any health questions, request your medical records or ask you to take a medical exam.

The company will assume that your health is the same as it was when you took out your term policy, although the premium will take into consideration your age at the time of the conversion.

This is a good option for people who purchased a large term policy, but now need less life insurance. Perhaps the mortgage is paid off and the children are grown, but there are still debts that would need to be paid in the event of a death. Converting part of a large term policy to a permanent policy is a good way to continue your insurance coverage, but with a smaller face amount.

In some cases, people who would not be able to get a new life insurance policy, or for whom it would be prohibitively expensive due to medical issues, can still get a permanent policy to protect their family. The cost of the permanent policy will be based on the type of policy and the insured’s age.

There is often a time limit on when you can convert your term policy to a permanent one, so check the details of your term policy carefully.

Benefit is Free of Federal Income Tax

A big advantage of term life insurance is that, in most cases, the benefit that is paid to your beneficiary when you die is free of Federal income tax.

This means that if you have a $250,000 term life insurance policy that names your spouse as your beneficiary, and you die during the term of the policy, your spouse will receive $250,000 that will not be taxable. There may be some rare exceptions to this rule, so consult your tax advisor for details.

Permanent life insurance policies often pay interest which must be reported to the Internal Revenue Service and may be taxed as other income.

Easy to Compare

Term life insurance policies are relatively straightforward. There is a term, which is the number of years the policy lasts; a face value, which is the amount of money to be paid upon your death; and a beneficiary, which is the person you name who will receive the money if you die. If you die while the policy is in force, the insurance company pays the death benefit to your beneficiary.

Because these policies are simple, it’s easy to compare the policies offered by different companies. Your cost will vary a bit from company to company, because insurers may look at different risks differently.

For example, if you take medication for a health condition, one insurer may consider you riskier, and therefore charge you more, than another company might. The simplicity of term life insurance makes it easy to compare and to find the best policy to protect your family.

The many benefits of term life insurance make it a good choice for many families, especially those who may need a large amount of coverage for a defined period of time, and want that coverage at a reasonable price. Term life insurance is a good way to make sure that your family will have financial security should you not be there to provide for them.

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