Life insurance can be pretty confusing. Since it’s such a large investment, you’re going to want to do some research to make sure you get your money’s worth. But don’t let all the odd vocabulary and hefty price tags keep you from buying into it. If you’re on the fence on whether or not to invest in life insurance, check to see if you need it. If you do – or even if you don’t, but still want some coverage – you’ll need to figure out what policy is the smartest investment for you and your beneficiaries.
Term life insurance is one of the popular coverage policies that Americans purchase. The other popular form – whole life insurance – is a bigger investment with more payout in the long run. Determining which insurance coverage makes the most sense for you is essential, as is shopping around for quotes on either of these policies to ensure you’re getting the best rates.
What is term life insurance?
This type of policy lasts for a period of time that you can decide at the time of your purchase. You might agree to a monthly pay period to gain coverage for 1 year, 10 years, 30 years or anywhere in between. To benefit from this type of life insurance, the policyholder would have to die during the coverage period. Almost every type of death is covered by this policy; however, suicide is not always included, especially if it occurs close to the time in which the policy is purchased, as this is a huge red flag for the insurance company.
What are some benefits of this type of coverage?
The biggest benefit of term life insurance is that it’s less expensive than permanent coverage. Economically, this type of coverage makes the most sense for people looking to spend less money now but receive less money in the long term. You can compare it to renting property vs. buying it; it’s not the best long-term investment for everyone, but other people benefit from a pay-as-you-go cycle.
What are the drawbacks of it?
Since coverage through this type of policy is only for specific durations, not paying on time may result in a lapse in coverage; during lapses, you won’t be protected until you pay for all of the due premiums. Unlike permanent life insurance policies, term life insurance won’t grow your cash value over time. Finally, if you pass away after your coverage term ends or during a lapse, your beneficiaries will not get the death benefit.
Types of term life insurance
Just as there are multiple options of car insurance and home insurance, there are a lot of term life insurance coverage options. There isn’t one policy that works best for everyone; some people may get the most benefits from one type of term life insurance, while others benefit the most from another type. Just as no two people are the same, their personal and financial situations vary immensely.
Annually renewable term: Under this policy, your premiums will usually start out low and gradually increase over the coverage period. People often pay a premium for 12 months of coverage, then pay a higher premium 12 months later to continue this coverage, and so on until their coverage comes to an end.
Fixed-rate level term: Policyholders will pay a set premium throughout the course of their coverage, all the way until it expires. Due to the lack of an increase in premiums, people that invest in this form of life insurance are more likely to keep this policy in place than people with annually renewable plans. This is the most common form of term life insurance.
Decreasing term: This type of coverage is most popular with people with a liability like a mortgage or any loans. Policyholders pay a set premium for the period of the policy, but the face value of the policy will decrease over time. People holding this sort of policy may need a higher death benefit early on in their lives, especially if they are raising children or paying off debt, and need less coverage as they get older.
“Return of premium” term: This policy gives a refund of premiums to any policyholders who don’t die during the term. The ability to get a refund makes this coverage considerably more expensive than the other term life insurance coverage options.
The medical exam
Before your insurance company can quote your term life insurance policy, you will most likely need to complete a medical examination. These generally check your weight, height, blood pressure, blood, urine, and any past family medical history. The purpose of this medical test is to make sure you aren’t likely to develop certain diseases, including cancer, heart disease, or even diabetes. If you do not perform well during this test, an insurance company may not want to invest in having you as a customer. In addition, this exam will determine how much of a risk you pose health-wise; the greater the risk, the higher your premiums will be.
Before this examination, make sure you take care of yourself to ensure your health is at its best during this checkup. Drink a lot of water, get a good night’s sleep and avoid fatty foods, alcohol, and even coffee for the best results possible. Also, try to plan your exam for early in the morning; you are less likely to be stressed at 8:00 AM than you would be at 5:00 PM, after a busy day of work.
Term life insurance isn’t for everyone. In fact, many life insurance customers feel whole life insurance benefits their lifestyle more than term life insurance would. While whole life insurance has higher premiums than term life insurance, having the cash accrual over time is a smart investment. Do some research to see what type of policy would work the best for your personal situation and read some customer reviews of the different forms of term and whole life insurance. Lastly, make sure you get the best deal by receiving multiple quotes for life insurance policies. Fill out our quick form to receive multiple quotes so you can protect your beneficiaries at the best rate possible.