22 May Who Should Buy Term Life?
Who Should Buy Term Life Insurance?
Young people don’t normally think about life insurance. They think about purchasing a home, starting a family, and earning a high income. Nevertheless, these life ambitions are plenty reason to consider purchasing life insurance in your 20s and 30s. What if you learned that life insurance is much less costly than all the other services you pay for on a daily basis?
Well, the good news is that term life insurance is relatively cheap, which is why you should investigate it further. If you are in your 20s and 30s with a clean bill of health, your life insurance rates will be at their lowest. According to insurance review sites, the average consumer should expect to pay between $300 to $400 a year – which is equivalent to $25 to $33 a month – for life insurance.
However, this really depends on how much coverage you want. Additional factors to consider is how much risk you may pose to the provider – for instance, health status and the type of policy you want affect your premium. Purchasing term life insurance while you are young will help you lock in a low premium rate for the lifetime of your policy. Premiums will increase exponentially each year that you age so locking in that low premium can be very helpful.
What is Term Life Insurance?
Term life insurance is a form of life insurance that protects you for a certain period of time, also referred to as a term. The term may be a certain number of years or before you reach a certain age. The insurance provider will use detailed statistical analysis or actuarial models in order to assess the liability risk inherent to providing coverage to the policyholder. One risk they face through coverage involves paying a death benefit to the designated beneficiaries following the passing of the policyholder.
By using these statistical models for analysis, the providers take into account the policyholder’s life expectancy and health profiles. They also take into account interest rates and future projected expenses. The life insurance providers require a monthly fee – insurance premium – for taking on the responsibility of making the death benefit payout. This form of insurance does not have a cash value aspect, like whole life insurance.
As the policyholder, you will pay the insurance policy premiums up until the term expires. In exchange, if you pass within the policy’s term, the policy beneficiaries are entitled to a tax-free death benefit. When the term expires, the coverage will cease to exist as well, and you are no longer required to pay the insurance policy premiums.
Term life insurance, according to most experts, is the perfect option for easy and inexpensive life insurance coverage. Term life insurance, unlike permanent life insurance, protects you for a specific amount of time. Typically, the length of time is 10, 20, or 30 years.
Who Should Buy Term Life Insurance?
In general, insurance providers typically recommend any adult with dependents to receive coverage through a term life policy. Therefore, for young adults who wish to cover their families, term life insurance is the best option.
The most appealing feature of a term life insurance policy is the low monthly premiums. This number is calculated by the insurance provider based on a person’s age, ethnicity, fitness, and sometimes driving background, work, interests, and whether they smoke. Be prepared for your provider to require you to undergo a medical examination as well.
Purchasing term life insurance is completed through these four steps:
- Application Process – either online or via an insurance agent, which could require a medical examination.
- Selecting a Term – policy term lengths are typically ten, twenty, or thirty years.
Choosing a term long enough to see your children out of the house and college is a reasonable guideline. For a longer term, you will spend more on the premium each month of your policy term. In addition, getting protection when you are young is best because it is cheaper, and you never know what the future may bring.
- Determining the Amount of the Death Benefit – the rule of thumb is ten times your average income, but you are not obligated to follow this rule.
For example, if you earn $75,000 a year, you should buy a $750,000 life insurance policy. You are not however, bound to that number by any means. If you want to pay for your child’s education or pay off your family’s debt, you will need more. Generally speaking, you should buy as much life insurance as you can reasonably afford each month. If you struggle to pay the cost of your insurance premiums each month, then the amount you originally estimated is probably too much.
- Choosing a Beneficiary – Before you pass away, you will appoint one or more people to collect the death payout benefit.
You choose the beneficiary of the life insurance policy after deciding on a death benefit amount. The majority of policyholder’s pick a beneficiary based on the individual they would want to collect the death benefit payout. According to the Insurance Information Institute, you can choose several individuals, a trust you have created, or a charity organization. The beneficiary of most couples’ life insurance policies is the spouse, a partner, or a trust formed for a child.
Once you have completed these steps and have been approved by whichever insurance provider you are working with, you will receive your monthly payment amount. After that, you will begin paying for the term life insurance policy and your coverage will be in effect.
Term life insurance is one of the most cost-effective forms of life insurance and is an excellent choice for young people. Term life insurance plans exist for a set period rather than indefinitely. This results in the lowest annual premiums required to pay for any kind of life insurance. If the breadwinner passes prematurely, a term life insurance payout will help the family supplement their income.
Types of Term Life Insurance Policies
Term life insurance comes in a variety of forms. Some of which are more common and costly than others. According to the Insurance Information Institute, the following are the top term life policies offered to policyholders.
Level Premium – A level term policy will pay the full benefit amount even if the policyholder were to pass at any time during the policy term. The term is generally 5, 10, 20, or 30 years. Currently, this is the most common form of term life insurance.
Yearly Renewable – If a policy is “renewable,” it ensures the policyholder can renew the policy for an additional term or terms, up to a designated age. This includes the circumstance in which the policyholders’ wellbeing (or other factors) would cause him or her to be turned down for a new life insurance policy.
Return of Premium – Regarding most types of term insurance, if you have not made a claim under the term insurance policy by the time it expires, you won’t get a reimbursement. There are some insurance providers who have included a “return of premium” provision in their term life policies. This returns a portion or the full amount of the money you have already spent if you haven’t used the policy once your term expired.
Guaranteed Issue – These policies are simpler to obtain because they do not require a medical examination. In exchange, you are only asked a few basic health questions. A downfall of this policy is that it may not pay a complete death payout for the first years of coverage.
Convertible – The policyholder has the right to change the policy to a permanent (whole) life insurance policy. They can do this without having to provide additional proof of insurability.
Term Life Insurance is the MostCost-Effective Coverage
For most individuals who research this type of life insurance, they are often quoted on whole life insurance policies. This is one of the main reasons that many people feel that the cost of life insurance isn’t worth the investment. Fittingly, a typical whole life insurance policy can be up to 10 times more expensive than term life insurance. In most households, this type of expense would be more than problematic.
The cash value option is the key reason whole life insurance is so much more costly than term life insurance. The cash-value benefit feature offered with whole life insurance allows the policyholder to withdraw funds later in life. Since, as the name suggests, term life insurance has a fixed term. This usually makes it less costly. The policy remains active as long as the premium is paid over the fixed period of time. The coverage expires at the end of the term.
Why You Should Buy Term Life Insurance – Even if You Believe You Don’t
Almost everybody requires some form of life insurance. This is true even if you don’t have someone that is explicitly dependent on you or your income. At the very least, you should have enough insurance to cover the cost of final expenses, including funeral and burial fees.
That said, you should have enough money to cover any emergency and medical costs. Additionally, money set aside to cover any open loans and urgent commitments. Some argue they don’t feel they need insurance coverage because they do not have another dependent on their income, like a spouse or a child. However, you don’t want your parents or relatives to be concerned with any of the above mentioned costs in the event you pass away.
It’s worth remembering that your parents or siblings have no legal obligation or responsibility to pay off any of your debts after you die. The only individual liable for a payment is someone who cosigns a loan with you. Yet, debt collectors will make attempts to coerce relatives into paying anyway.
One of the reasons that life insurance is so vital is that you can’t go back in time if you don’t have coverage. It would be too late to care for your loved ones in some significant way after you have passed away. When it comes to other forms of insurance – for instance, health insurance and homeowner’s insurance – there are usually ways to work around that if you don’t have coverage. This is not the case for term life insurance.
Some may ask, “What happens if I outlive my term life insurance policy?” Some insurance providers offer the option to convert a term life policy to a permanent (whole) life policy by adding a rider. A term conversion rider is added if the policyholder wishes to continue receiving coverage past the fixed term. This rider needs to be introduced at the outset of your policy and allows you to keep your coverage without the hassle of a new medical test or filing for a new policy.
Who May Not Require Term Life Insurance?
Even if you play a major part in your families’ lives, double check to see if you need life term life insurance. Here are a few examples of individuals who don’t typically need term life insurance:
- Retirees – Ideally, your children should be financial stable by the time you hit retirement age. Also, it is very likely that you have paid off your major financial obligations and debts. There is no particular need for life insurance at this point of one’s life.
- Children – While many life insurance providers have plans expressly intended to protect your children, and some insurance providers will even want to give you one, it is not usually advised because children do not make a living or contribute to the family’s financial well-being.
This isn’t to assume that none of the people in the cases mentioned above need life insurance. Individual cases need to be considered. If you have a big estate, for example, you may want to consider a policy to help reduce the burden of estate taxes. However, it is critical to consider whether it is appropriate or worth your while.
Many individuals should have life insurance coverage earlier rather than later. This includes whether they have outstanding mortgages, dependents, or are not close to retirement age.
You need life insurance if you don’t make it home and there is anyone who relies on your income to survive. On top of housing, auto insurance, school loans, and retirement savings, it can be difficult for younger individuals to justify paying for yet another large monthly cost. However, an additional $20 to $60 a month is likely worth it when it comes to protecting your family members in the event a tragedy strikes.