Term life insurance may seem difficult to understand, with complex explanations and terms that are difficult to comprehend. Knowing what term life insurance is, the benefits as well as other aspects, may better enable you to make the decision on whether it is the right type of insurance for you or your loved ones.
Just What is Term Life Insurance?
CNN Money says that term life insurance “gives you all the coverage you need and none that you don’t. That’s why it’s the best choice for almost everyone.” But is it really the best coverage, giving an individual “all the coverage you need?” Is it really “the best choice for almost everyone?”
Term life insurance is exactly what it implies – life insurance for a specific term of years. That term may be 10, 20 or for even more years. If the insured dies within the time specified in the term life insurance policy, the life insurance benefits will be paid to the stated beneficiary, in full, as designated by the amount of the term life insurance policy. Lifeinsurance.org explains that if the term of the policy ends while the insured is still living, the policy terminates, but usually with an option to renew.
Term life insurance may be considered by many to be the best option for life insurance because of the affordable rates that an individual pays for the term of the policy. When considering whether to purchase term life insurance for yourself or a loved one, it is imperative to understand the terms of the policy, including the fine print.
Is Term Life Insurance For You or Your Family?
While this may be the best choice for some individuals who are purchasing life insurance for the first time or when supplementing existing insurance, there are specific criteria that must be understood by the prospective insured.
Term life insurance is frequently referred to as “Death Benefit Only” insurance. This is because there is no cash surrender value, as is common with whole life insurance policies.
There are other reasons that term life insurance may be considered, however. MetLife explains that term life may be considered when you want to “Get maximum coverage at an affordable price,” or to “Cover specific financial responsibilities like a mortgage or college expenses,” and finally for the purpose of supplementing another policy.
Term life insurance, unlike many of the whole life policies, may offer immediate coverage, with no medical exam. This may be important for those who know they are ill or at risk due to family history of certain diseases or medical conditions.
Weighing the Options between Term, Accidental Death and Whole Life Insurance
If you are in the market for term life insurance, it is important to not just jump at the first opportunity. Rates vary from one insurance company to the next, as do the amount of potential coverage and the cost of future rates. Many term policies specify that rates will increase as you enter the next “age bracket,” usually in five-year increments. So if you purchase a term policy today and you are 49 years old, your monthly rates will likely increase when you turn 50. Rates are almost always slightly higher for men, no matter the age bracket.If you do find term life insurance options where rates will not increase as you age, it may be higher, but may better suit your needs, particularly if this will be your only insurance. However, many term policies will just pay out the policy at age 70 or 80.
There are also many term life insurance policies that instruct the applicant to “answer just a few medical questions.” Your answers may be used to disqualify you from acceptance.
I considered term life insurance, but wanted more. I do not have much insurance but decided on a whole life policy that did not require answering medical questions and will insure me for the rest of my life. My rates do not increase for the life of the policy.
I also have accidental death and dismemberment through a financial institution, but that policy covers only what the term implies – accidental death and dismemberment. So if I am killed in a car wreck, my beneficiary will be paid, but if I die of illness, unrelated to accidental death or dismemberment, the benefit will not be paid.
Whether you purchase term, accidental death and dismemberment or whole life insurance, there is a potential for rates to increase. This can occur if you decide later, after the initial policy, to purchase additional insurance. Even though you have an existing policy, the cost of the additional policy will depend on your age at the time the additional insurance is purchased, not the original policy. So considering the same previous age of 49 years old at the time an original policy is purchased, if you decide you can afford more insurance at age 56, you will pay the price for a 56 year old, even though you have an active policy that began when you were 49.
Nearly every insurance company places certain restrictions on paying the benefits of the policy. Suicide is one of those conditions.
Whether term life insurance is right for you is a personal decision that must be made considering the many options. Is it the right insurance for you? Will it be used as a primary or supplemental policy? Is the amount of the policy you are considering enough? Also consider the term of the policy. If the policy is 20 years; at the end of that term, you will be given the option to renew, but it may be at considerably higher rates. For some, this may not matter and term life insurance may still be the perfect option.
Remember that with term life insurance, rates will most likely increase as you enter into the next five-year age bracket. You need to consider whether this occurs when considering which company to purchase insurance with and if you can afford the increased rates 15 or 20 years from now, or even longer, for the life of the term. Term life insurance is a great option for many individuals and their loved ones, if there is a complete understanding of exactly what term life insurance is and the specific terms of the policy and when comparing it to other forms of insurance, such as whole life and accidental death and dismemberment.