Term life insurance, one of the oldest forms of insurance on the market, protects your family against financial loss upon your death and enables your dependents to continue to live a certain quality of life, pursue college, and pay down debt. Unlike whole life insurance, term life is pure insurance with no cash value attached, but it can be a valuable resource for your beneficiaries.
Who Needs It?
Term life insurance is a death benefit. It can replace the income that your family would lose should you die. You should buy life insurance if you have dependents who will require financial support in the event of your premature death. All parents with minor children should be knowledgeable about term life insurance so they can make an informed decision concerning their needs.
Duration of Coverage
Your term life insurance policy expires after a pre-defined period that typically ranges from 5 years to 30 years. If you have young children, you should consider purchasing a policy with a 20-year term or longer. This will help fund your children's college expenses in the event of your untimely death. You can also cancel the policy anytime. Many policyholders choose to cancel term life when their children are grown or when they are ready to retire.
Affordability
One advantage of term life insurance is its low cost. EconomicExpert.com notes that of all forms of insurance policies, term life is one of the least expensive plans relative to its payout. Unlike whole life insurance, there are minimal charges for sales commission or account maintenance. According to SelectQuote Insurance Services, as of late 2009, a 40-year-old could get a $500,000 20-year term life insurance policy for approximately $400 per year.
Benefit Payout
Term life pays a lump sum to your designated beneficiaries upon your death and places no restrictions on how the cash is used. According to EconomicExpert.com, only 1 percent of term life policies pay a benefit because most individuals survive beyond their policies' terms. The low chance of payout allows underwriters to keep the cost down.
Selecting a Policy
You can custom design your term life policy according to your personal circumstances. The amount of benefit you need depends on the number of dependents you have, the lifestyle and college plans you have for your family and your outstanding debt, including your mortgage. You should purchase your term life insurance policy while you are healthy. If you have a pre-existing health condition, you may be charged higher premiums or deemed ineligible altogether.
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