What is Term Life Insurance?
Term life insurance is a type of life insurance that expires after a specific amount of time. With this type of policy you receive “pure” life insurance coverage.
Reasons to consider term life insurance
Five key things you should know about term life insurance
- Policies typically last 10-40 years, providing a death benefit for a specific period of time.
- Term life is a good option if you think your family’s need for coverage will be less in the future.
- In general, this is a less expensive option compared to whole life insurance.
- Term life insurance doesn’t build cash value.
- It’s important to consider the time when your coverage period will end because premiums can increase.
What is the difference between term and whole life insurance?
A basic term life policy offers:
- The length of your policy is flexible to fit your needs
- Often less expensive than whole life insurance
- Premiums and death benefits that remain unchanged while your policy is active
- Ability to renew coverage after your policy expires, although this could result in a higher premium
A basic whole life policy offers:
- Your policy never expires (assuming you’re paying your premiums on time)
- Fixed premiums
- A death benefit that only increases as long as no cash value has been withdrawn
- Ability to build cash value of death benefit over time
- Living benefits: cash that accumulates can be withdrawn or borrowed for any purpose the policyholder requires
Term life insurance
Term life insurance provides a death benefit during a specific coverage period. This “pure” life insurance allows your beneficiary to receive your death benefit should you die during the period of time covered in your policy. If you do not die during the period in which your policy is active, your policy will expire, and you will not receive any death benefits or refunds.
The amount of time covered by a term life insurance policy can range anywhere from 1 to 40 years (potentially more based on your policy). When your policy expires, there is a possibility to renew. However, the premium could be higher. The premium that you pay goes towards administrative fees, company profit, and a reserve account that distributes death benefits to policyholders that pass away. As you age, the cost of life insurance premiums becomes more expensive because your chances of passing away increase.
Term life insurance often allows for conversions allowing you to change your policy to a whole life insurance policy without answering any questions about your health. Get in touch with the National Educational Services today to get a quote from a professional life insurance agent.
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Life insurance FAQs
Life insurance can be confusing. Find answers to the most frequently asked questions.
The policy owner is the person who owns the life insurance policy. In many cases, the policy owner is also the person who is insured by the policy. However, the policy owner may also be a relative of the insured, a trust, partnership, or a corporation.
A beneficiary is the person(s) selected by the policy owner to receive the life insurance payments upon the death of the insured.
Premiums are the payments made to the insurance company to purchase and keep a policy active.
A death benefit is the amount paid to the beneficiary at the time of the death of the insured.
The face amount of the policy is the amount of the death benefit as stated in the policy. This does not include additional amounts that the policy may provide.
Insurability refers to how likely an applicant is to be offered coverage based on current health, medical background, family history and other factors.
When determining this the main factor to consider is the period of time you’ll need coverage, especially if you have children. If your children are young, twenty or thirty years of term life coverage would help your children get through college or secure their future. If your children are older and able to support themselves, you might consider a shorter term period that’s more appropriate for your needs.
Generally, the benefits received by beneficiaries after death are collected tax free. If you have a permanent life insurance policy, the funds accumulated over time would not be subject to income tax as long as the policy is still in effect. Finally, while withdrawals and loans reduce the value and death benefit, most are not taxable.
When choosing a life insurance company be sure they have exceptional customer service, competitive pricing, great claims payment history, as well as being financially sound. To learn more about company ratings online visit Standard and Poor’s, Moody’s, Fitch and Weiss.