A Term Life Insurance Primer

Life insurance – everywhere you turn from your mailbox to your television to your child’s take home school notices, someone is telling you that you need life insurance. Most often, the insurance being touted is term life insurance, one of the simplest forms of life insurance available. Term life insurance will pay a benefit to the person (or people) named as beneficiaries on the life insurance policy if the person insured dies within the time that the policy is in force. To get term life insurance, you pay an annual premium, often payable in monthly installments. The amount of the premium is most often based upon the age of the insured. Is term life insurance necessary, and if so, how much do you need? Are there special considerations? Should you insure yourself, your spouse or your children? These are some of the most frequently asked questions about term life insurance. Let’s take an overall look at term life insurance and how it works to help answer the questions you may have about whether or not term life insurance is a good investment of your money.

What term life insurance is – and what it is not
Term life insurance is the simplest form of life insurance. You pay premiums to an insurance company each month based on an annual premium. In return, if the person named as the insured in the policy dies during that year, the insurance company pays you a fixed amount as a death benefit. Term life insurance is not an investment vehicle. It will not pay you dividends. It can not be cashed in at the end of the term. Its primary purpose is to pay a cash benefit to survivors if the insured person dies during the term that the policy is in force.

How premiums are determined for term life insurance
Generally, the insurance company determines the premium based on the age of the insured and the face value of the insurance policy (how much the insurance company will pay if the person dies). Since the chance of the insured person dying increases each year, the older the insured is, the higher the premium will be. Sometimes there are conditions that will be taken into account and will increase the premium, or decrease it. For instance, many insurers will reduce the life insurance premium if the insured does not smoke tobacco.

Different types of term life insurance
There are basically two types of term life insurance differentiated by the way that the premium is paid. In standard term life insurance, your premium will increase each year (or over each renewed term). Standard term life insurance is usually the most affordable form of insurance for a young person, but can be prohibitively expensive as the insured ages. In level term life insurance, the premium amount is guaranteed not to increase over the life of the term, regardless of your health. Often, level term life insurance is taken out for periods of five, ten or fifteen years, and is renewable for one, two or three terms. It is more expensive at the outset, but less expensive in later years, since the premium is guaranteed not to increase.

Who needs term life insurance

Anyone who will leave behind expenses if they die should consider term life insurance. If your death will cause a financial hardship for your family, then you should consider purchasing term life insurance to be certain that their financial needs will be covered if you should die.