Is Term Life Insurance Worth It? The Answers To All Your Concerns
Term life insurance is widely considered the most affordable policy of choice. Boasting lower premiums than other types of policies, this type of insurance offers straightforward no-frills coverage.
With such an affordable price, you might be wondering: is term life insurance worth it? Well, it all depends on your specific circumstances. Our guide will help you answer whether or not this is the right type of policy for you!
Getting To Know Term Life Insurance
Term life insurance is a popular choice, especially for younger people that may yet not be able to afford permanent life insurance or need the extra features that it provides. This type of life insurance covers you for a certain amount of time before it expires. Typical terms range from 10 to 30 years.
How It Works
When you apply for a life insurance policy, the company will ask you to disclose your personal information. This includes questions about your age, gender, lifestyle, medical conditions, and family history. You may also be asked to take a medical exam.
After submitting your requirements and deciding on the amount of coverage you want, the company determines the amount you’ll be paying regularly, called a premium.
Once you start paying regularly, you are insured until the term ends. If you pass away within this time, the insurance company pays the cash value of what your policy is worth to your designated beneficiaries. This is called the death benefit.
If your term ends before you die, you can either let it lapse or renew it for another term. Depending on your policy, you might have the option to convert it to permanent life insurance.
Term Life vs Permanent Life
Term life insurance is a much cheaper option than permanent life insurance, but that doesn’t automatically mean it’s the better option for you. There are pros and cons to both, and getting to know them will help you determine which life insurance policy is worth it for you.
A term life policy has much lower premiums and no added bells or whistles, which saves you lots of money in the long run. If you have dependents and are looking for financial protection for a specific period, this is the way to go. However, the only cash value component of term life is the death benefit.
Permanent life insurance (also called whole life) offers a savings or investment component besides a death benefit wherein you can accumulate cash value over time. After a certain amount of time, you’re allowed to withdraw this cash value tax-free. If you have the extra money and want to be covered for the rest of your life, permanent life insurance may be a better option.
While you might have the same goals as other people looking at the same type of life insurance, your unique situation can make things completely different and you may end up losing money on a poorly planned policy. If you’re not 100% sure on your choice, it’s best to consult with an independent agent or a trusted financial advisor.
Policy Factors To Consider
Premiums are regular payments you’ll have to make to your life insurance company to enforce your policy. Different insurance plans will charge different amounts, but it’s important to note that other factors affect how much you’ll be paying, such as age, gender, and lifestyle.
The older you are, the higher your premiums will be; men also tend to be more expensive to insure than women. Life insurance companies will also be taking a look at smoking and drinking habits as well as any high-risk activities you partake in.
Deciding how long your term should last can be tricky. Your life may look completely different at the end of a 20 year term and you might want to raise the cash value of your plan. In 30 years, you may need or be able to afford a much more complex plan like permanent life insurance.
To help determine how long you need coverage, ask yourself why you need insurance in the first place?
If it’s because you're a parent and want to protect your child until they are independent, then you can start with the years until they graduate. If it’s to protect a spouse, then count the years until retirement.
Amount Of Coverage
The amount of coverage you get equates to how much death benefit your beneficiaries will receive. Many people say that to get a quick estimate you should multiply your annual income by 10. This is hit or miss, however, as everyone will need different coverage for different reasons.
As with the last question, asking what you need to be insured for will help you determine what kind of financial protection you need.
You can get a good estimate by multiplying the years you’ll need coverage by your yearly income. For example, if you’re looking to protect a child until they are legal, calculate your yearly income for the length of time you want to be covered.
Of course, this will only reflect a partial view of your financial needs. Look at how much money you earn and how much money you’re hoping to save. You should also work with a professional financial advisor that can help you accurately calculate for a sum that considers your unique situation.
Life Insurance Riders
Life insurance riders are extra benefits that may be tacked on to your policy. Some may offer you financial protection by letting you withdraw cash value from your life insurance policy while you’re alive, and some allow you to convert to a permanent life insurance plan after your term expires.
It’s important to be aware of any insurance riders that come with or are offered alongside your policy, as they can cost a lot of extra money and might be unnecessary. Only make use of insurance riders if you can afford the cost and need the added benefit.
Personal Factors To Consider
One of the things most people will hear when it comes to life insurance is that you should get it while you’re as young as possible. While this isn’t always necessary, depending on your situation, there are benefits to buying insurance early.
The biggest of which is that younger people qualify for lower premiums, making it cheaper in the long run. This is because the older you get, the more you are considered high-risk.
Health is a major factor that companies look at when screening life insurance applicants. This is because companies are betting on you to not need to use the insurance, so they’ll want low-risk clients as much as possible.
When you apply for a life insurance policy, you’ll be asked to disclose your medical history and you may be asked to take a medical exam. Any health conditions you have could drive up the costs of your life insurance. In the worst case scenario, you may even be rejected for life insurance.
Along with your health, certain lifestyle habits may put you into higher risk categories. These habits include smoking, drinking, or even extreme sports.
Again, you’ll be asked to disclose all these things when you apply. Different companies will treat certain lifestyle habits differently, so if you engage in any of these activities, you may want to shop around for more lenient insurance policies.
Dependents are people that rely on you and your income, including spouses, minor children, even key employees. They are listed under your policy as beneficiaries, so if anything happens, they receive the cash value amount from your death benefit.
When Should You Get Term Life Insurance?
Here are a few of the most common scenarios wherein term life may be right for you:
You’re a parent with a minor child and want to make sure they are financially protected until they are able to provide for themselves.
You’re the primary breadwinner of the family and need to be insured to have means to replace your income if you pass away.
You have debt for things like credit card bills, mortgages, or car loans.
You’re starting a business and want to insure against start-up debt if anything goes wrong.
When Is Term Life Insurance Not Worth It?
Term life insurance might not be worth it for you if:
You’re looking to have life insurance coverage for your whole life. In this case, a 20 year term or something like it may not save you much money. You might want to look into permanent life insurance instead. You’re also able to build up cash value.
You have no dependents or your children and spouse are financially independent. This means no one depends on your income whose life would be greatly affected if you were to pass away.
You’re young, debt-free, and aren’t looking to get married or start a family any time soon. In this case, you can probably hold off on having to pay life insurance policy premiums for now and save money for the future.
Shopping For Term Life Insurance Plans
Once you’ve determined what type of term life insurance plan you need, how long you want coverage, and how much of a death benefit your loved ones will receive, you’ll want to start shopping around.
There are loads of insurance policies, so before you do so, there are several things you’ll want to make sure you consider and prepare.
Documents And Records
When you fill out an application for a life insurance policy, the company will ask you an assortment of health questions, and quite a few more non-health questions. Non-health questions include your lifestyle and any risky activities you partake in, criminal records, and even future travel plans.
There’s quite a lot of paperwork to go through, so making sure you have all of these things in order will greatly reduce the time you spend on applying.
Research Your Insurance Company
One of the golden rules of life insurance is that the policy itself is only as good as your insurance provider. If the company goes bust, that’s your life insurance out the window.
You can look up the biggest or best-rated life insurance companies online to compare reviews. Another good way to check is to look at a company’s claim settlement ratio.
This refers to the number of policies that have been settled by a life insurance company. The higher the percentage, the more efficient a company is at paying out the cash value of a policy.
Good life insurance will guarantee you complete coverage, death benefit, and peace of mind. By thoroughly understanding your situation and properly researching life insurance plans that suit your needs, you’ll save time and money in the long run.
If you’re still a bit confused, get in touch today! Our team of professionals at Wesley LLC will make sure you’re getting the best deal on life insurance for your money.