Insurance

Term life insurance: What you need to know

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Life insurance could play a crucial role in your family’s financial well-being if the unthinkable happens. Term life insurance is one way to get your family covered without spending a fortune.

People often think life insurance is too expensive or they can’t afford it because of other financial priorities. How can you possibly afford life insurance when you’re paying off debt, saving for retirement and putting your child through college? Term life insurance is one option. It could cost you less than $1 a day.

“Consistently consumers have told our researchers they believe they can’t afford life insurance, but when we dug deeper, our research showed that many overestimate the cost by as much as 300 percent,” says Robert Kerzner, LIMRA’s president and chief executive officer.

LIMRA’s 2016 “Trends in Life Insurance Ownership” study and LIMRA’s 2017 Insurance Barometer Study found that:

  • 30 percent of households don’t have life insurance
  • 20 percent of households with children under age 18 don’t have life insurance
  • 43 percent of families without life insurance say they would be in immediate financial trouble if a primary wage earner died

If these sound like you, term life insurance could be a low-cost option to get coverage. Let’s walk through term life and see if it’s right for you.

What is term life insurance?

Term life insurance covers you for a set period, such as 10, 15, 20 or 30 years. A policy will pay your loved ones the face value of your policy if you die during that time.

So if you purchase a 20-year term, $250,000 life insurance policy, and you die five years later, your beneficiaries would receive the $250,000. The benefit ends after 20 years.

Life insurance is cheaper when you’re younger. So, if you purchase it when you’re in your 20s, your premiums will be much lower than if you wait until you’re in your 40s.

That’s one of the reasons it’s important to figure out in advance how long you’ll need the coverage. You’ll end up paying higher rates if you decide to renew later. Your age is a key factor in setting rates.

Plus, you’ll likely have to go for a medical exam or answer questions about your health. If you’re in poor health, your rates will be even higher, or you may find that you might not qualify for a term life insurance policy.

Many employers and organizations offer life insurance. However, you may find these plans don’t cover your needs. In that case, you’ll need to supplement your policy with individual coverage. Also, you’ll lose that group life insurance benefit if you leave your job.

One reason some people may shy away from term life is that you pay premiums, but don’t get any of that money back if you outlive the policy. There is an option in that case. Return-of-premium term life policies repay you the amount you paid in for coverage. However, those plans cost much more than regular term life policies.

Another consideration is convertibility, which allows you to convert your term life policy to permanent life insurance without having to answer health questions. Some term policies let you make the switch within the first few years after you’ve obtained coverage. Other policies allow you to make the change at almost any time that you have the policy.

How much does term life insurance cost?

Many factors go into the cost of term life insurance, including age, gender and health status. Here are the average annual premiums for term life death benefits of $250,000 for people classified as “Regular” health.

Average Annual Premiums for Term Life death benefit of $250,000

Health profile and term length Age 30 Age 40 Age 50 Age 60
Female non-smoker 10-year term $232 $318 $598 $1,225
Female non-smoker 20-year term $303 $466 $948 $2,316
Female non-smoker 30-year term $426 $693 $1,573 $7,300*
Female smoker 10-year term $448 $704 $1,508 $3,279
Female smoker 20-year term $602 $1,166 $2,337 $5,406
Female smoker 30-year term $910 $1,634 $3,669 $13,030*
Male non-smoker 10-year term $274 $377 $769 $1,782
Male non-smoker 20-year term $357 $578 $1,202 $3,179
Male non-smoker 30-year term $523 $866 $2,065 $7,300*
Male smoker 10-year term $565 $885 $2,003 $4,492
Male smoker 20-year term $753 $1,363 $3,141 $7,107
Male smoker 30-year term $1,164 $2,131 $4,460 $13,030*

*Limited quotes available. Data source: Compulife Quotation System as of Jan. 2019.

When term life insurance may be the best option for you

The biggest difference between term life and permanent life is that term life covers you for a specific period time. Permanent life stays with you no matter your age as long as you pay the premium.

Here’s a look at differences:

Term life Permanent life
Length of time Term life is for a limited time — often 10, 15, 20 or 30 years Lasts your whole life
Premiums Often less expensive than permanent life Usually more expensive
Cash value No cash value Accumulates cash value so you can tap into the policy if needed
Conversion option Term life policies often let policyholders convert to permanent life You can’t convert from permanent life to term life

Term life is usually the more affordable choice, but make sure you understand the downsides to term life. That includes not being to build cash value and losing coverage once the policy ends. Losing your policy means you’ll need to make sure you have other ways to fund final expenses and any other outstanding debt like a mortgage and college bills.

Here’s when buying a term life policy would likely work better for you:

  • You don’t have much money to put toward life insurance.
  • You want to make sure your family gets protection through your middle-aged years. A 20-year policy could take you through your most productive years.
  • You want to maximize a potential benefit. Term life often pays out more for less money than permanent life. The downside is you can outlive a term life policy. You may have the option to convert to a permanent life policy near the end of your term life policy though.

Not sure which way to go? Check out our term life vs. permanent life comparison page.

Medical exams for term life insurance

A medical exam may be required when applying for a standard term life insurance policy. The exam will cover your height, weight, medical history, smoking habits and include a blood and urine test. These tests will look for specific medical problems. The results of the tests may hinder you from getting approved for the insurance, or increase your rates, depending on the outcome. (See “How to ace your medical insurance exam.”)

If that worries you, there is a term life insurance policy that doesn’t require a medical exam. Guaranteed issue term life insurance coverage, also known as “quick issue” or “simplified issue,” is ideal if you have difficulty finding life insurance due to a medical condition or illness. You pay a higher premium because no medical exam is required.

The insurance company views this as risky, so you pay more. The insurer may also have a waiting period before coverage takes effect, and may charge a yearly fee.

How much term life insurance do you need?

A good starting point if you want to determine how much coverage you’ll need and how much you might pay is the life insurance calculator on LifeHappens.org. The website of the nonprofit organization Life Happens educates the public on life, disability and long-term care insurance.

When deciding on how much life insurance you need, think about:

  • Funeral costs
  • How much it will cost to replace your income
  • The services that you provide your family, such as child care
  • Your outstanding debts, such as mortgages, credit card bills and loans
  • Long-term financial commitments, such as paying for your child’s college

You can start figuring out if you need extras or riders on your policy once you figure out what your family might need financially.

Term life extras and riders

Term life policies can include extra features or riders. For example, your policy may include an accelerated death benefit. This type of rider lets people who are terminally ill, have a chronic illness or in long-term care tap into life insurance, while still leaving your loved ones with the remaining life insurance benefits.

You also may receive a disability waiver of premium, which grants you a waiver on paying your premiums if you’re disabled for at least six months.

And some policies offer double or triple the payout if the death is an accident………Read More>>

 

Source:- insurance

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