How Does Payout Work On Term Life Insurance?

Term life insurance is a contract between the owner and an insurance company. The owner pays a premium for a specific term, and in return, the insurance company promises to pay a specific death benefit in cash to a beneficiary upon the death of the insured. The benefit is usually tax-free, unless the premiums are paid with pre-tax dollars. Before the provider gives you a policy, they need to assess how much of a risk you are to insure through the underwriting process. You need to choose a term length and decide how much death benefit you want. You should consider getting enough coverage to care for your family’s needs if you’re not there to support them. Name your beneficiaries, and if possible, look for an insurer that offers the option to convert from term to a whole life policy without taking another medical exam.

Term Life InsuranceWhole Life Insurance
No cash value componentProvides a death benefit and builds cash value over time
Lower premiumsHigher premiums
No return of premiumMay have a return of premium option, but more expensive
No renewal clauseMay have a guaranteed renewal clause

When your term life policy ends, you either have to buy another policy at a higher cost or go without life insurance. If your policy has a guaranteed renewal clause, you can renew at the end of your term on a year-by-year basis, but at a higher rate. While expensive, it can be worthwhile if you have been diagnosed with a terminal disease that makes you otherwise uninsurable. Term life insurance policies do not have a cash value component. If you want a policy that provides a death benefit and builds cash value over time, you should consider getting a whole life insurance policy. Guardians offers a financial professional who can guide you through the process of calculating your actual need and tell you about the best ways to meet those needs within your budget and types of life insurance policies available.

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