Hey, meet Tom. Tom was playing tennis with his brotherinlaw, who convinced him to purchase
a life insurance policy to secure the future of his family. Doing some research on the internet,
Tom realized that term life insurance is one of the most popular options out there and would
like to to get more information.
Well, Tom is right. Term life insurance is an amazing option,
but there are many details that he does not know about. He needs truthful and unbiased advice
to make a well informed decision. If you feel like Tom and you need to know more about term life
insurance, how it works, its main components, and different types, make sure you complete
this video. Till then, we will also go through some numbers for term life insurance based on
a particular death benefit.
Term life insurance, which is sometimes referred to as pure life insurance, ensure the payment
of a death benefit if the policyholder dies within a specific term. If the agreed upon term expires,
the policyholder can't have the option of renewing the policy for another term or convert the
policy to a whole life insurance that does not expire. Make sure you check out our video on whole
life insurance to get more information on this.
The policyholder can also let the coverage expire, which would mean that they will not be covered anymore and that the insurance is terminated.
Term life insurance is very suitable for young parents who may be eligible for large amounts
of coverage for a reasonably low cost. Term life insurance is also suitable for people who want
temporary life insurance and do not want to commit to their entire life or pay high premiums.
The premiums you pay for the term life insurance are mainly based on the value of the policy,
which is also known as the payout amount or
the death benefit. Other factors directly influence premiums such as age, gender and health.
That is why the insurance company requires a medical exam before providing you with coverage.
The insurance company may also request some information about your driving record, current
medications, smoking status, occupation, hobbies,
and family history. Factors that are not directly related to the insured party, such as interest rates, the financials of the insurance
company, and state regulations also affect the number of premiums paid. The premiums paid
for term life insurance are lower than other types of life insurance since it only provides
a death benefit. That would be in addition to the fact that most term life insurance policies
expire before paying the death benefit.
So the overall risk to the insurance company is lower than that of whole life insurance. Just to get a sense of it, a healthy 35 year old man who does not smoke and obtained a 20 year term insurance policy that provides a death benefit of $250,000 would typically pay something between twenty dollars to thirty dollars per month. This is considered very cheap when compared to whole life insurance,
which would require the same person to pay around $200 to $300 per month to get this permanent coverage. If you die during that great term of the insurance, the insurance company will pay the death
benefit, otherwise known as the face value of the policy, to your beneficiaries.
Beneficiaries of the policy can be a person, people, business or a nonprofit organization that gets the death
benefit if you pass away. This non taxable death benefit may be used by the beneficiaries to
settle any outstanding consumer or healthcare debts. You have funeral costs or even pay off
a mortgage debt.
You need to make sure that your family members know about your term policy and
who to contact in the case that you passed away so they can access the death benefit available
to them. The death benefit may remain unclaimed if the beneficiaries do not have clear instructions on accessing the dollars available to them. Nonetheless, if you die while the term insurance has already finished, there will be no payout for the beneficiaries.
Term life policies have no value other than the guaranteed death benefit. Term life insurance
comes in several flavors, including convertible, increasing mortgage, and annual renewable.
Each one of these types targets a specific need for potential customers. Convertible term
allows the term insurance policy, which typically has a limited number of years, to be converted
to a whole life insurance before it expires.
It does not require the policyholder to do a medical exam, nor are any health conditions considered when the term policy is converted. In the typical
term life policy, the insurance company could refuse to renew your coverage at the end of the
policy's term if the policyholder developed a serious illness. Increasing term allows the
increase of death benefit as the time goes forward.
The premiums do increase with increasing the death benefit, but it allows the insured party to
pay lower premiums early in life when they have a lot of bills and expenses, then increase it
when they have a better financial standing. The other benefit of an increased term is that the
policyholder does not need to qualify for another policy at an older age to get a higher death
benefit.