Lots of different life events can trigger a search into life insurance options. It could be a marriage or the decision to start having children. As the primary earner in your family, you will likely want to make sure that your spouse or dependents are protected and taken care of financially should something happen to you. Looking for term life insurance.
If you have recently started looking into different life insurance options, you might have heard about term or whole life policies. While they both offer a lump-sum payment called a ‘death benefit’ to your listed beneficiaries after the insured dies, the amounts and types of coverage vary. If there are no surviving beneficiaries, the money goes into your estate and goes through probate in accordance with local laws.
What is Term Life Insurance?
While permanent life insurance, sometimes called ‘ whole life ’ insurance, offers “better” protection, it’s not always the best choice for everyone.
Term life insurance is a great option for those who see the need for life insurance but are looking for a more affordable option. Term Life Insurance works just like Permanent Life Insurance except it is only effective for a specific period of time. For example, if you bought a 15 year term life insurance policy and it hasn’t paid out, it will expire at the end of those 15 years. At that point, you would have the option of renewing your coverage. But be warned, if you develop some kind of chronic medical condition in the meantime, you may not be able to qualify for further coverage.
However, even if you don’t qualify for further coverage, all is not lost. Many Term Life Insurance policies come with a Return of Premium option that you can purchase for an additional premium. If you choose this option, all of the premiums you paid to the insurance company will be returned to you should you outlive the policy term.
What types of Term Life Insurance are available?
There are term policies with a level benefit (the amount stays the same), some are decreasing term (the benefit decreases over time) and some are one year renewable policies. Your Trusted Union insurance broker can help you select the right coverage for your needs.
Is Term Life Insurance right for me?
Term insurance is a great option if you are looking for a life insurance policy that is more affordable or if you only need temporary protection. Perhaps you only need life insurance to ensure a 25 year mortgage gets paid off or are only looking for protection until your children finished school. In these cases, there is no need to commit yourself to a more expensive whole life policy.
Another situation where Term Life Insurance is worth considering is if you’re young and relatively healthy. If you’re young and maybe don’t earn a ton of money but want some life insurance protection, a term policy is a more affordable option. You can get protection at a cheaper rate and since you’re young, you are unlikely to develop a medical condition that causes you to be ineligible for future coverage when your term policy expires.
Most often, this type of insurance is used for debt payments (ie. to repay a mortgage if the primary earner becomes deceased), income replacement for surviving family members, or funding your children’s college tuition. Term insurance is a great choice if you need a large benefit at an affordable price.
If you have a spouse or family member that doesn’t contribute income, it could still be a good idea to get some term life insurance for them. Most policies will let you add an additional insured onto your policy giving them the same benefit amount you have.
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How much insurance is enough?
Ideally, you’ll want to purchase enough life insurance to enable your family to maintain their quality of life without your income. If that is too expensive for you to reasonably afford at the time, you can consider purchasing enough insurance to tide your surviving dependents over for a few years with enough money left over for your spouse to train for a new career.
If you work with Trusted Union to secure Term Life Insurance, we will go through a comprehensive “needs analysis” with you that takes into consideration things like: current debt load, expected college tuition fees for your children, monthly living expenses, and income replacement for your surviving family members. This “needs analysis” exercise will generate the amount of insurance you should buy in ideal circumstances but there’s certainly no obligation for you to purchase that much insurance. It’s simply a guideline so you should purchase enough insurance as you can comfortable afford.
Keep in mind that this number will change as well over time as your debt load and income replacement needs decrease. For this reason, you should have your policy reviewed by a licensed and reputable broker and a needs analysis redone regularly.
When is the best time to buy a Term Life Insurance policy?
The best time to purchase a life insurance policy is usually when you’re prompted by a major life event like marriage or the birth of a child.
Another great time to purchase is while you’re still young. Purchasing life insurance while you’re still young leads to cheaper premiums and takes away some of the downside of a term policy because you’re more likely to be health and therefore eligible for renewal at the end of your policy term.
If you’re still confused or would like to learn more about which option is right for your specific situation, contact us.
What is term life insurance and how does it work?
As you may already know, a life insurance policy is a policy that insures your life. If you were to die while the policy is in force, it pays a lump sum death benefit to your listed beneficiary(s).
Term life insurance is a form of life insurance that is only active for a fixed length of time (this length of time is commonly referred to as the “term” - hence the name “term life insurance”.
A typical term life insurance policy lasts anywhere between 10-25 years (in multiples of 5). If you die during the policy period, provided you’ve paid all of your premiums, a death benefit will be paid to your beneficiary(s).
If you were to outlive the term of the policy, then the policy just lapses and nothing happens. That said, many policies have the option to extend for another fixed length of time or to convert it into a whole life policy either mid-term or at expiry.
What are the benefits of term life insurance?
A term life insurance policy has 3 main benefits: affordability, flexibility, and simplicity.
All things being equal, a term life insurance policy is much cheaper on a monthly basis than a whole life insurance policy. This is because there is an expiry date to the policy.
A term life insurance policy is also more flexible than a whole life policy. Since there’s a fixed term, you’re not locking yourself into paying monthly premiums for the rest of your life. And with different options like convertibility, accelerated death benefits or long term care benefits (all available with an extra charge), you always have the option to modify your policy at a later date. With all the add-ons attached, it can start to look very much like a whole life insurance policy.
Another often overlooked benefit of a term life insurance policy is its simplicity. With all of the bells and whistles stripped out, it’s a very easy policy for clients to understand: if you die during the policy term, the insurance company will pay whatever sum of money you’ve chosen to the beneficiary(s) you’ve chosen to include on your policy.
Is term or whole life insurance better?
Unfortunately, as with most things in life, there is no one clear cut winner. There is no policy that is better than any other. It all depends on what your goals are.
If you just need insurance for a short period of time (ie. a mortgage or the birth of a child), then a term life insurance policy would be the “better” option.
If you value flexibility or want life insurance that is more affordable, term life insurance is a “better” option than whole life insurance.
But if you’re looking for an investment component or want to use life insurance to build and transfer wealth as part of a larger financial or estate planning strategy, then whole life insurance is “better”. A whole life insurance policy can accumulate a cash value that can be withdrawn or borrowed from while the insured is still living.
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If you’re worried about insurability in the future or want to know that you’ll always have an insurance policy in force to protect your dependents, then a whole life insurance policy is “better”.
Can I sell my term life insurance policy for cash?
There are many reasons why someone would want to sell their life insurance policy. It can be a useful source of money for people facing financial hardships. Many people that need to pay for medical bills, long-term care, etc. will sell their term life insurance policy as a way to finance those expenses.
But not all term life insurance policies are sellable. It is only possible if your term life insurance policy can be converted into a permanent life insurance policy (look for the “conversion rider” in your term life insurance policy). And you can only sell it after you’ve converted it.
Once you’ve converted it, you’re able to negotiate a settlement with the buyer. The amount of settlement is based on your age, health, type of insurance, premiums, and the death benefit amount.
That said, just because you’re able to sell your policy, it doesn’t mean you should. If you need extra money to pay for medical bills and other expenses due to a terminal illness, check if your policy has an accelerated death benefit rider. This rider lets you receive your death benefit early in the event of a terminal illness.
If you’re looking to sell your policy to finance long-term care, you can check to see if your policy contains a long-term care rider. It works in much the same way as the accelerated death benefit rider.