Term life insurance is just one of the many resources you can use to ensure your family’s comfort and financial security in case of tragedy. This form of insurance is specifically designed to replace your income should you pass away earlier than planned. As the name suggests, term life insurance is for a specific number of years and a fixed payout amount. The premiums are guaranteed not to change during the term of the insurance contract. This is unlike other forms of life insurance like whole life or universal life, which are in effect for the insured’s lifetime as long as the premiums are paid.
This time certainty feature allows insurance companies to charge a lower premium rate for this type of policy. Most advisors recommend that you don’t think of term life as part of your estate, but rather as an income replacement vehicle. It should be part of your strategy along with savings, investment accounts and other resources that your family can use. You can select virtually any term for your life insurance. The basic policy is good for one year – If you should die anytime during that one year period, the insurance company pays out the policy amount to your family.
But if you pass away one year and one day after taking out the policy, they get nothing. The solution to this problem is to buy guaranteed level premium insurance. Under this policy the premium you pay stays the same each year during the term of the life insurance policy. The longer the term, the higher the premium, since with a longer term policy there is a higher chance that the company will need to pay out. The longest term typically found in this type of insurance is 30 years. There also may be a maximum age for the insured, usually 95. Most buyers choose terms of 10, 15, 20 or 30 years, and this is generally based on the remaining expected work life expectancy of the buyer.
Remember, term life is used as an income replacement. It’s assumed that you will have other resources like retirement accounts that your family can draw on after your retire. It’s not a good idea to carry term life into your retirement years. So take some time now and sit down with your insurance agent.
Ask about the various options you have to choose from in order to protect your family. Your agent will help you construct a plan that you can live with and use as a firm base for all your future financial decisions. There are also many websites, some with calculators, that you can use to help you make this critical set of arrangements. Be sure to ask about the costs, terms and payouts of term life insurance – a powerful tool for financial security.