Term life insurance is an insurance product that is paid to a beneficiary at the time of the insured party’s death. For example, at age 22, Kimberly (the insured party) purchased a term life insurance policy with a face value of $150,000. When she purchased the policy, she identified her disabled mother, Doris, as the beneficiary. Kimberly unexpectedly died 5 years later. Upon Kimberly’s death, Doris received a check for $150,000 from the life insurance company.
According to the National Association of Insurance Commissioners, term life insurance covers the insured party for a period of one or more years. The word “term” indicates that the insurance coverage will be available for a certain period of time. A major benefit of purchasing this type of insurance is the low monthly premium. In comparison to its counterpart (whole life insurance), term life insurance is less expensive and provide larger amounts of overall coverage.
Who should buy term life Insurance?
Individuals with a spouse or dependent should be especially concerned about life insurance. If you are a caretaker of anyone who is considered a dependent, having adequate life insurance is very important. Also those individuals with outstanding debt should purchase enough coverage to meet their obligations.
Key Factors to Remember
- It is important to purchase adequate term life insurance. As a matter of fact, Dave Ramsey recommends purchasing a term life policy eight to ten times your annual salary.
- You can save money on your term life policy by paying your premiums annually as opposed to paying monthly.
- Term life insurance premiums are calculated based on your age and overall health. To save money, it is important to have a healthy lifestyle.
- Term life policies provide financial protection for the deceased person’s family at a rather inexpensive price. While money cannot replace life, it can alleviate the financial burdens that come along with death, such as funeral costs and loss of income.
- For those individuals with minor children, it is important to assign a guardian for the children or open a trust. In addition to designating a beneficiary, your last will and testament should reflect who the guardian for the children is and reinforce how the monies are to be spent.