Term Life Insurance

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What is term life insurance?

Term life insurance is typically the most affordable option to protect your family in the event that something happens to you. It’s a policy that covers you for a specific amount of time, or term — typically 10, 15, 20 or 30 years. You make premium payments during the term you’ve selected, and your insurer will pay a death benefit to your beneficiaries if you pass away.

Why term life insurance?

Term life insurance tends to be a more affordable policy than permanent life insurance because it doesn’t build any cash value that you can borrow against or invest and it ends at the term of your contract instead of providing lifetime coverage. If you still need coverage at the end of your term, however, you may be able to renew or convert your policy.

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How does term life insurance work?

Select the duration of your coverage

Decide the number of years your financial needs will be greatest (for example, when your kids are younger or while you’re paying a mortgage).

Determine how much you need

Think about how much your loved ones may need to replace your income. This can be accomplished using a needs analysis calculator.

With a term life insurance policy, you pay fixed premiums for the term you’ve selected to be covered. Your monthly payments will stay the same throughout your premium period. If something were to happen to you, whoever you choose as your beneficiary will receive the tax-free death benefit.

In order to receive a policy, you may need to complete a life insurance medical exam so that your insurer can get an idea of how healthy you are.

Who may need term life insurance?

Term life insurance may be a good option if you have people (or even pets) who depend on you financially. You may want to purchase a policy that will correspond with how long they’ll be dependent on you — for example, if your children are young or in college. The tax-free payout can help provide financial peace of mind for your family. They can use this money to replace lost income, maintain a certain lifestyle and pay off any outstanding debts such as a mortgage.

And keep in mind that wage-earners aren’t the only people who may need coverage. Stay-at-home parents provide child care that would need to be replaced if something happened to them. So, as you’re considering your needs, it’s important to take these expenses into consideration, too.

How much does term life insurance cost?

The monthly cost for term life insurance will vary based on your specific situation. For example, the younger you are, typically the lower your premium will be as you are less likely to pass away before your term ends. Women also tend to pay less because on average they live longer than men. How healthy you are is also a factor in your cost.

Example: A nonsmoking female in excellent health buying a $350,000 20-year term policy would pay:

term_cost-estimates

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Advantages and disadvantages

Advantages of term life	Disadvantages of term life
It can provide financial protection for your family.	It covers you for only a specific amount of time, not for your entire life.
It’s typically less expensive than other life insurance options.	Once the term ends, the coverage ends or the premiums increase dramatically.
The younger you are when you purchase life insurance, the less expensive it typically is.	The older you are when you purchase coverage, the more expensive it gets.
You can convert many term life insurance policies to a permanent insurance product such as whole life insurance, universal life insurance or variable universal life insurance.	If you want to purchase another policy after your term ends, you may have to show evidence of good health. (An annual renewable term policy may not require this, but your premiums may increase each year.)

Benefits of term life insurance

Protection for the period of time you want: Term life insurance is available in 10-year, 15-year, 20-year or 30-year terms and is renewable each year until age 95. It can be converted to a permanent life insurance policy during the term period (up to age 65).

Affordable coverage that won’t increase over time: Your premium payments are guaranteed to stay the same for the duration of the term you select.

Income tax-free payout: The payout your beneficiary receives if you pass away during the coverage period is typically income tax-free and has a steady value throughout the life of your policy.

Optional riders: There are also features, called riders, available on some products that let you access your death benefit during your lifetime to help pay for expenses related to critical, chronic or terminal illnesses.