Term life insurance is a contract between the owner of the policy and an insurance company. The owner agrees to pay a premium for a specific term, and in return, the insurance company promises to pay a specific death benefit to a beneficiary upon the death of the insured. The payout is usually tax-free unless the premiums are paid with pre-tax dollars.
Before getting a policy, the provider assesses how much of a risk you are to insure. They will typically ask for a medical exam to evaluate your health and other personal information like occupation and lifestyle. The underwriting process determines the rates, and certain hobbies and dangerous occupational environments may raise the premium.
Choosing a Term Length and Death Benefit
One of the biggest questions to ask yourself is how long you need coverage. The longer the term, the more you will typically pay each month for a given coverage amount. It is generally easier to get insurance while you are younger and in good health, so it usually pays to get a longer-term policy than a shorter one. You should also consider getting enough coverage to care for your family’s needs if you’re not there to support them. The amount of coverage needed will vary from person to person, and it is best to talk with an experienced professional to calculate your actual needs.
Convertibility and Renewal
Convertibility is a policy provision that lets you change your term insurance into a permanent whole life policy later on without having to get a new medical exam. It is a feature offered by almost all major insurance companies that let you change your type of life insurance. When your term life policy ends, you either have to buy another policy at a higher cost or go without life insurance. However, 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.
Comparison and Choosing an Insurer
|Term Life Policy||Whole Life Insurance|
|No cash value component||Builds cash value over time|
|Lower premiums||Higher premiums|
|Specific benefit over a specific term||Permanent life-long coverage|
In conclusion, term life insurance is an important investment to care for your family’s needs if you’re not there to support them. You should choose a term length and death benefit that works for your needs and consider getting enough coverage to care for your family’s needs if you’re not there to support them. It is best to talk with an experienced professional to calculate your actual needs and choose an insurer that offers the best features for your situation.