Including life insurance is essential in nearly any good overall financial plan. This is because this type of coverage can help policy holders to protect their loved ones from the high cost of final expenses and other debts, as well as from the loss of income should a family’s bread winner pass away unexpectedly.
In today’s life insurance marketplace, there are two key types of coverage. These are term and permanent. Within each of these categories are many different versions of coverage, each with its own features and benefits that may work in various financial planning situations.
How Term Life Insurance Works
Term life insurance is considered to be the most “plain vanilla” type of coverage. These policies provide a set amount of death benefit in return for a regular premium payment. Term policies also have a specific duration, such as 5 years, 10 years, or 20 years – after which, the policy will expire.
At that time, the policy holder will either need to renew his or her term life insurance coverage, or simply let the policy end. Due to the set time frame of term life insurance, the policy will only pay a death benefit to the beneficiary if the insured’s death occurs while the policy is in-force.
Unlike permanent life insurance coverage such as whole life, term insurance does not provide any type of cash value build-up or investment feature within the policy. It is for this reason that the premium for term coverage is typically less than that of permanent life insurance plans with a comparable amount of death benefit coverage – at least initially.
When the initial “term” of a term life insurance plan ends and the policy holder opts to renew his or her coverage, the new policy will be underwritten at the then-current age and health condition of the insured. Because of the insured’s older age – and any potential adverse health conditions that the insured may have developed – the premium on the renewed policy may be quite a bit more than that of the policy’s previous cost. And, in some instances, the policy holder may even be deemed as uninsurable.
Types of Term Life Insurance Coverage
There are several different types of term life insurance coverage. One type – level term – will keep the face amount (death benefit) of the policy the same throughout the entire duration of the policy.
This is different from a decreasing term policy where the amount of the death benefit proceeds will become less over time. Conversely, an increasing term life insurance plan will have a death benefit that increases over time. This will typically also require an increase in premium as well.
There is also fully underwritten life insurance which requires a medical exam and no exam life insurance which doesn’t require any exams.
Why Buy Term Life Insurance
There are numerous reasons for purchasing term life insurance. First, this type of policy may allow an insured who is young and healthy to purchase quite a bit more coverage than a permanent life policy with the same premium amount.
Term life insurance policies are also good for covering debt obligations that are for a set amount of time. For example, if an individual wants to ensure that his loved ones can pay off a home mortgage should he pass away, he could purchase a 30-year term life insurance policy in the amount of the mortgage balance that is due. Should the policy holder live for at least 30 more years – and have his mortgage paid off – the need for that particular policy will no longer be present when the term life insurance policy expires.
Where to Get Term Life Insurance Quotes
Term life insurance quotes can be found in a variety of ways. These include online, via telephone, and through a personal meeting with a licensed life insurance agent. When obtaining a quote for a term life policy, certain information will be needed from a potential applicant, such as:
- Age or birth date
- Smoker or non-smoker (or user of tobacco in other forms)
- Amount of policy benefit
- Length of policy duration
In most cases, premiums on term life insurance will be higher for those who are smokers, as well as for those who may have certain types of health conditions. In addition, applicants who are older will also likely pay more in premium than their younger counterparts for the same amount of term life insurance coverage.
Many websites and insurance agents will also provide a potential term insurance buyer with comparisons of different term life quotes from various insurance companies. This can help individuals in making a better and more informed choice.