The value of any life insurance policy lies in its ability to provide financial protection and peace of mind to policyholders and their loved ones. It can help ensure that your loved ones are not left with significant financial burdens and that they would be able to maintain their current lifestyle despite losing you.
But that’s not all, term life insurance policies can also be purchased with additional living benefits which are additional features that provide policyholders with access to their death benefit while they are still alive. Living benefits can take many forms and can vary from policy to policy. Some common living benefits offered by term life insurance policies can include chronic illness riders and long-term care riders among others.
So, as you can see, there is a lot to consider when trying to determine whether or not a term life insurance policy is “worth it”. After all, if it were free, it would be difficult to imagine anyone turning it down.
That’s why we thought it would be beneficial to delve into the topic of term life insurance and examine its characteristics, as well as its advantages and disadvantages. This way, you’ll have a clearer understanding of whether a term life insurance policy would be worth it for you personally.
Term life insurance policy
Term life insurance is a type of insurance that provides peace of mind and financial security for you and your loved ones during a difficult and uncertain time. It is designed to help protect your family from the financial burden that may arise in the event of your unexpected death.
A term life insurance policy is essentially a contract between you and an insurance company. You pay a premium, and if you pass away during the term of the policy, your beneficiaries receive a tax-free lump sum of money known as the death benefit. This money can be used to cover expenses such as funeral costs, mortgage payments, or other debts.
It’s important to understand that a term life insurance policy is temporary coverage. It only provides coverage for a specified period of time, usually ranging from 10 to 30 years. However, this makes it an affordable option for people who are looking for a way to protect their families financially in the short term.
At its core, term life insurance is about providing comfort and security for you and your loved ones during a challenging time. By choosing to invest in a term life insurance policy, you can help ensure that your family is taken care of even if you’re no longer here to support them.
Benefits of a term life insurance policy
A term life insurance policy can provide several benefits to you and your loved ones, offering peace of mind and financial security during difficult times.
- Death Benefit: The most important benefit of a term life insurance policy is the death benefit, which is a tax-free lump sum of money that is paid to your beneficiaries in the event of your death. This money can be used to cover expenses such as funeral costs, mortgage payments, or other debts, helping to ease the financial burden on your family during a difficult time.
- Affordability: Term life insurance rates are typically more affordable than other forms of life insurance, making it a great option for people who are looking for an affordable way to protect their families financially.
- Flexibility: Term life insurance policies are highly flexible, allowing you to choose the term length that best fits your needs and budget. This gives you the opportunity to select a policy that provides coverage for the period of time when your family is most in need of financial protection.
- Peace of Mind: Knowing that your family is protected financially in the event of your unexpected death can provide you with peace of mind. By investing in a term life insurance policy, you can help ensure that your loved ones are taken care of even if you’re no longer here to support them.
- Estate Planning: A term life insurance policy can also be used as part of an overall estate planning strategy, helping to ensure that your assets are passed on to your beneficiaries in the manner you choose.
The potential downside to owning a term life insurance policy
While term life insurance can provide many benefits, there are also two major disadvantages to them as well. Those disadvantages are:
- No Cash Value: Unlike permanent life insurance policies, term life insurance policies do not build cash value over time. This means that if you outlive the term of your policy, you won’t receive any money back or have any other benefit from the policy.
- Temporary Coverage: A term life insurance policy only provides coverage for a specified period of time, typically ranging from 10 to 30 years. This means that if you outlive the term of your policy, you’ll no longer have life insurance coverage unless you choose to purchase a new policy.
Now, these two objections can be easily overcome by purchasing a whole life insurance policy rather than a term policy however, the cost of such a policy will likely be significantly more expensive.
How much does a term life insurance policy cost?
Determining the cost of a term life insurance policy is a complex process that takes into account several factors. Factors such as:
- Age: As a general rule, the younger you are, the lower your life insurance premiums will be. This is because the likelihood of death decreases as you age.
- Health: Your health history and current health status play a significant role in determining the cost of your life insurance policy. Policyholders with pre-existing medical conditions or a history of chronic illnesses are considered to be at higher risk and may have to pay higher premiums.
- Lifestyle: Life insurance companies also consider factors such as smoking, drinking, and other habits that can impact your health and longevity.
- Coverage amount: The amount of coverage you choose will also affect the cost of your policy. The more coverage you need, the higher your premiums will be.
It’s important to understand that life insurance companies use this information to assess the policyholder’s risk level and determine the likelihood of them passing away during the term of the policy.
How does one apply for a term life insurance policy?
Applying for a term life insurance policy is a straightforward process that typically involves the following steps:
- Determine the type of policy you need: There are several different types of term life insurance policies available, so it’s important to understand the differences and select the policy that is right for you.
- Calculate the coverage amount you need: You’ll need to determine how much coverage you need in order to provide for your loved ones in the event of your death. You’ll want to consider factors such as your current debts, future expenses, and your family’s standard of living.
- Get quotes from different insurance providers: Shop around and get quotes from different life insurance providers to compare rates and coverage options. You can use online comparison tools, speak with a financial advisor, or contact insurance companies directly.
- Complete an application: Once you’ve selected a policy, you’ll need to complete an application. This typically involves providing basic personal and medical information, as well as answering questions about your lifestyle and medical history.
- Underwriting and medical examination: After submitting your application, the insurance company will likely request that you undergo a medical examination (although no medical exam life insurance options may be available). This exam is used to assess your overall health and determine your life expectancy, which is a major factor in determining the cost of your policy.
- Wait for approval: After the underwriting process is complete, the insurance company will review your application and determine whether or not to approve your coverage. If approved, you’ll receive a policy, which will include all of the terms and conditions of your coverage.
- Make payments: If you are approved, you’ll need to make regular payments to keep your policy in force. The amount you’ll pay will depend on the type of policy you choose, your age, and your overall health.
Overall, applying for a term life insurance policy is a relatively simple process, but it’s important to take your time, shop around, and choose a policy that is right for you and your family.
Common objections to buying a term life insurance policy
“I’m too young to worry about life insurance.”
While most of us probably wouldn’t want to know exactly when they were going to die, if we did, it sure would make it easier to know “when” buying a life insurance policy is right. Unfortunately (or fortunately, depending upon how you feel) this isn’t the case, so while you may feel you are too young to worry about buying a life insurance policy, nobody is guaranteed tomorrow.
So, you just never know when it might be too late. Fortunately, though, insurance tends to be less expensive the younger you are, so you do have that in your favor should you decide to buy a term life insurance policy.
“I don’t have enough money for life insurance.”
You may be surprised at how affordable life insurance can be, especially if you start your coverage early. There are also various life insurance options available that can fit different budgets, so you may be able to find a policy that works for you.
“I don’t need life insurance because I’m single.”
Even if you’re single, you may still want to consider life insurance if you have debts, such as a mortgage or student loans, or if you want to provide for someone you care about, such as a parent or sibling, in the event of your death.
“I already have life insurance through my employer.”
While employer-sponsored life insurance can be a valuable benefit, it may not be enough coverage for your needs, and it may not be portable if you leave your job. Consider supplementing your employer-sponsored life insurance with an individual policy if necessary.
“I don’t want to think about death.”
No one wants to think about death, but life insurance is a responsible and practical way to provide for your loved ones in the event of your death. By securing life insurance coverage, you can have peace of mind knowing that your loved ones will be taken care of financially.
“I’m in good health, I don’t need life insurance.”
While it’s great to be in good health, you never know what the future holds. Life insurance provides coverage regardless of your health, so it’s best to secure coverage while you’re young and in good health to take advantage of lower rates.
Plus just think about it this way, it doesn’t matter how healthy you are if a young teenage driver crashes into you while they were driving and filming their latest tic-toc video, right?
“I don’t have anyone who depends on me financially.”
While you may not have anyone who depends on you financially, life insurance can still be important for covering final expenses, such as funeral costs, and for providing a legacy for your loved ones, charity, or other causes that you care about.
“I don’t have time to shop for life insurance.”
With the convenience of online shopping and insurance comparison tools, shopping for life insurance has never been easier. You can compare quotes and find a policy that fits your needs without having to leave your home or take time off work.
“I don’t understand how life insurance works.”
It’s normal to have questions about life insurance, but there are many resources available to help you understand how it works and how it can benefit you and your loved ones. Plus our one and only job here at IBUSA is to help you understand life insurance and make it easy for you to obtain.
“I won’t be able to qualify.”
Not everyone may qualify for life insurance coverage, but there are options for those with pre-existing medical conditions or other factors that may make it possible for even the most difficult cases to qualify for coverage. This is why it’s always best to speak with several agencies particularly if you’ve been told you’re not eligible for coverage.
“I don’t want to take a medical exam.”
While some life insurance policies require a medical exam, there are options available that do not. For example, you can choose a simplified issue or guaranteed issue life insurance policy that does not require a medical exam.
“Life insurance is a scam.”
Life insurance is a legitimate financial product that can provide peace of mind and financial security for you and your loved ones. It’s regulated by state and federal governments, and there are many reputable insurance companies that offer life insurance policies.
“I don’t care what happens to me after I die.”
While you may not care about what happens to you after you die, you likely care about what happens to your loved ones and the impact your death may have on their lives. Life insurance can help your loved ones with financial security and emotional comfort during a difficult time.
“My family doesn’t need it because I have enough saved for them.”
Having savings for your loved ones is great, but life insurance provides a level of financial security that goes beyond what savings can offer. Life insurance can provide a lump sum of money to help with final expenses, pay off debt, and provide financial support for your loved ones. It’s always good to have a backup plan in case of the unexpected.