This blog goes into depth on Term Life Insurance. It goes through some common applications of term insurance, a couple age-specific scenarios, as well as some of the limitations that Term Life Insurance has.
Are you having a hard time deciding on what type of life insurance to purchase? As you can imagine, there is a reason why there are different types of life insurance, as each type of life insurance serves different purposes. Therefore, it would be foolish to say that everybody should buy term, or that everybody should buy whole life. This series of articles explain the different options you have when it comes to life insurance.
Term
Term life insurance is a type of life insurance that last only for a certain “term.” It is the only type of policy with this feature, and depending on your age, the duration typically ranges anywhere between 5 to 40 years. When you are young, term policies are very affordable as the risk of your passing is very low. If you are 25 years of age and get a 30 year term policy, you will pay a fixed premium amount for that 30 year term. If you pass away during that 30 year period, the beneficiary you choose will receive the death benefit of your term policy. If you do not pass away during that 30 year period, you will no longer have coverage and will have to reapply for life insurance if you still want coverage.
Below is an example of the cost of the above scenario:
Sex: Male
Age: 25
Underwriting Class: Preferred Non-Smoker
Amount of Insurance: $500,000
As of November 2022, with the above criteria, this individual is looking at monthly payments of roughly $35. Keep in mind that you can choose to pay quarterly, semi-annually and annually as well. Total premium is marginally cheaper the less frequent your payment option is. For a quick example on that, in this case monthly payments are $35 x 12 = $420, while paying annually puts you at roughly $415.
Now if this person were to outlive his term policy, but still wanted coverage, here’s what another 30 years would look like:
Sex: Male
Age: 55
Underwriting Class: Preferred Non-Smoker
Amount of Insurance: $500,000
With the above criteria, this individual is now looking at monthly payments of roughly $280. As you can see, that is a big increase in premium payment. If this individual were to outlive his term policy yet again, due to his attained age of 85, most insurance companies would not write him another life insurance contract.
Term policies are by far the cheapest in terms of premium payments and are a great option for individuals, couples or families that are on a budget. They can be used to cover a mortgage payment, a family if the breadwinner passes, and other short-term liabilities such as college tuition.
For businesses, term insurance is a great tool for covering key-man employees. For example, if you have an important employee who is age 45, consider purchasing a 20 year term policy on him/her to cover your business until his/her retirement. Term insurance can also be very beneficial in buy-sell agreements so that your business and your loved ones are in good hands in case the unexpected happens.
There are tons of other applications for term life insurance. Contact us today to see if term life insurance is right for you and your situation.
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