What's Term Life Insurance and just how It really works


Simply put, life insurance serves as a cornerstone associated with a responsible long-term financial plan. Can you explain that? Because it protects those who matter most – those you love, and who depend on you to provide for them. If you have financial dependents – like children, or a partner you share a home loan with – it is important to have life insurance. If something should happen to you, these beneficiaries can use the policy's death help to help cover the cost of a funeral, meet day-to-day living expense, arrange for the near future, and a whole lot.

When shopping for life insurance, you'll quickly discover there are many kinds of coverage to choose from. Term life is a popular choice since it is a simple, affordable kind of coverage that covers your family during the years they need it most.

Learn more about term life to determine whether it's the right fit for your requirements.

How does term life work?

A term life insurance policy is a rather simple, straightforward product which provides protection for you personally and your family for any set period of time. It is also probably the most affordable types of insurance coverage out there.

The key sign of this type of life insurance coverage is right in the name – the term length of the policy. This is the period of time the insurance policy provides protection for your beneficiary or beneficiaries. Common term lengths are 10, 15, 20 or 3 decades. The way in which term life insurance works is that if you were to pass away during the term of your coverage, the life span insurance payout of your policy, referred to as a death benefit, visits the beneficiary or beneficiaries you designated.

Depending how your beneficiaries opt for it, the death benefit will go toward your partner's rent and/or mortgage; your children's education; paying down any lingering debts; as well as in the big event of the death, it can benefit those people who are mourning whatever is lost address their financial needs and worries during a difficult time. That death benefit is typically not taxed, either.

Term life insurance coverage can provide coverage throughout the years when families may need it most. For example, a parent or gaurdian with young kids may want insurance coverage that lasts at least until the kids finish college. Or a couple that just purchased their first home may choose a term length that lasts until their mortgage pays off. An online life insurance coverage calculator will help you evaluate which term length fits your needs.

What happens at the end of a policy's term length?

So let's say you receive term life. You may be wondering what happens whenever you get to the end of the term length.

Well, coverage ends. Following the policy's term length, you can either elect to have your lifetime insurance policy end or have it continue in increments of one year, which is available due to guaranteed renewability. However, your life insurance premiums is going to be higher at that time if you opt to continue your coverage following the term is up. This is exactly why you need to purchase the right amount of life insurance coverage from the beginning, or buy another, smaller policy when your needs change. It'll help you save money over time, rather than you having to extend your life insurance coverage later in life.

Your family only gets money in the life insurance coverage company should you die. That's why not simply because money again is really the best-case scenario: it means you're still alive. It's like auto insurance – the insurance company doesn't send your money back you paid just because nothing bad happened. You're paying for coverage just in case something does go wrong. Term life insurance is the same – the program is not to die, but you get life insurance coverage just in case.

How do you know if you want term life insurance?

If you have people in your life who're financially determined by you, the chances are you need life insurance. You might need life insurance if:

  • You share financial obligations with a partner or spouse
  • You have children or intend to ask them to soon
  • You have members of the family who rely on your earnings to pay their bills
  • You have cosigned debt – like private student loans – along with a cosigner who'd be responsible for them
  • You wish to bid farewell to an economic legacy to your family members to assist with burial expenses or to make life a bit more comfortable

There are various other scenarios where individuals decide to buy life insurance, however these are the most common. Fundamentally, life insurance is purchased so the policyholder has got the reassurance their beneficiary or beneficiaries will be financially protected contrary were to happen to them.

How much term life do you need?

Life insurance needs aren't one-size-fits-all. However, a common guideline is to have life insurance coverage that's 5 to 10 times your annual income. And the term of the coverage should last for the duration of your substantial financial responsibilities – until the mortgage pays off or your kids are in college.

We know we say this a lot, only since it is important: The purpose of life insurance coverage is it should protect your beneficiary from financial hardship should something happen for you. Therefore, the quantity of coverage you buy should take into consideration your expenses, such as the rent or mortgage, child care, debts, and then any other day-to-day bills you the family may have. (Remember: Rather than doing the math in your head, let an online life insurance calculator do the work for you.)

Once you choose a coverage amount and term length, you'll pay a monthly premium over the course of that term. While paying monthly for that amount of years may appear just a little overwhelming, your coverage is usually the least expensive when you get it while you are healthy and young.

If you're curious what your monthly premium might be, you can quickly and easily get life insurance coverage quotes online. For instance, a 30-year, $500,000 life insurance policy would cost about $35 per month for any healthy 35-year-old woman.

How much does term life cost?

Term life insurance coverage is generally pretty affordable, specifically for younger, healthier individuals. Here are some examples of the price of coverage for those in excellent health.

Quotes for term life insurance insurance

How to purchase term life insurance

As with anything, you'll start by researching the thing you need, look around to find the best value, after which invest in buying something – and this being the 21st century, you can do all that online. In fact, we happen to think we've made that entire process simple here at Haven Life, a MassMutual-backed life insurance coverage agency. Let's break it down for you personally:

First, you'll calculate your needs or, if you already know how much you'll need, get quotes for coverage. Next, you can easily apply online. The applying asks questions about how old you are and general health to determine your final pricing. If approved, coverage can start that day.

The only thing you might not have the ability to do online? Have a medical exam. Most medically underwritten term life insurance policies need a medical exam to finalize coverage.

There are a few cases, however, in which a medical exam may not be needed. Take Haven Life's InstantTerm process, for instance – some qualified applicants 59 and under and who're applying for up to $1 million in coverage may be able to finalize coverage with no health check. Bear in mind: It is essential to be truthful when completing the application. The issuance of the policy or payment of benefits may depend upon the answers succumbed the application as well as their truthfulness.

While it might be tempting to seek simplified issue or guaranteed issue policies that never require a medical exam, medically underwritten term life insurance is usually a good choice for healthy people searching for affordable coverage in amounts greater than $250,000.

Which is much better, term life or whole life?

All this being said – why choose term life? Aren't there other life insurance policy options available? There are, but there's a reason term life is definitely an affordable choice.

After all, life insurance coverage is all about protecting loved ones who depend on some or all your income. This usually applies when you have minor children or perhaps a spouse that you share financial obligations with. You're unlikely to possess those who are 100% financially determined by you for the entire life, though. This is where the “term” part comes in handy.

Permanent life insurance is yet another type of coverage which comes in some varieties, but the most common are whole life and universal life. Unlike term life insurance, permanent policies cover policyholders for life and provide a cash value component that can grow or decrease over time. The complexity of these products can also be why you should make use of a financial professional or agent to purchase and keep it in check.

Additionally, term life insurance premiums are more affordable than very existence or universal life policies, which often means they are appealing to younger, cash sensitive families. For instance, a healthy 35-year-old woman in excellent health could buy a 30-year, $500,000 Haven Term policy starting at about $35.4 monthly. A $500,000 whole life insurance policy for that same man would start at about $487.64 monthly [source: State Farm].

Whichever kind of life insurance coverage you choose, the finish goal is the same: protect the ones you like in a manner that is sensible for you.