Term life insurance is a type of life insurance that guarantees a death benefit to the insured’s beneficiaries if the insured dies within the set time period of the policy, which is usually 10, 15, 20, or 30 years.
You can buy a term life policy with a $100,000, $250,000, $500,000, or $1,000,000 death benefit. If you die within the term of the policy, your beneficiaries receive the death benefit. To keep your policy in effect, you must continue to pay your premiums. These premiums are low monthly amounts based on your age, health, smoking status, hazardous lifestyle, or risky activities at the time of the underwriting.
Once the term of your policy ends, you can choose to renew your policy or can convert it to a permanent (whole) life policy.
Compared to permanent (whole life) policies, term life has more affordable monthly premiums. For a healthy non-smoker in their 30s, term life may be $20-30 per month whereas whole life would be upwards of $200 each month. For young, healthy people, term life premiums are significantly cheaper.
The common phrase “buy term and invest the difference” sums up the general advice. Instead of paying larger premiums for a whole life policy and having the cash value savings component, you can buy affordable term life and invest your savings in stocks and bonds of your choosing. The added benefit here is that your beneficiaries can cash out your investments, while cash value attached to whole life policies stays with the insurance company upon death.
Parents with minor children can choose to invest in a 20-year term life policy to protect the financial well-being of their family in the case of the death of a caregiver. These large benefits can replace lost income and help the family afford childcare or education expenses until the children are no longer dependent.
Term life is also a good option for those paying mortgages or with other large loans. The benefit can make sure your loved ones are not left with your debt. Some term policies are designed to last only as long as you need them, with level premiums.
Level term policies have a fixed premium and death benefit, meaning you have the same monthly rate throughout the life of the policy. These are the term life policies that are most common.
With a yearly renewable term, you can renew the policy each year without having to prove insurability. These have no set term length. Premiums increase each year based on your age.
Decreasing term policies have a death benefit that declines each year based on the length of your mortgage. You pay level premiums and the benefit declines due to the decreasing principal of the loan.
Convertible term life policies have a conversion rider guaranteeing you the right to convert your policy to a permanent life policy without a medical exam. The new premiums will be based on your age when you convert.
Insurability is based on your age, medical condition, smoking status, lifestyle hazards, driving record, and more. Younger, healthy people will be able to find affordable monthly policies with large death benefits. If you develop a health condition within the term of your policy, you may not be able to renew or your premiums will increase due to the illness as well as your current age.
For more information about term life policies, reach out to Texas Medicare Advisors today.
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