When Should You Get Term Life Insurance?

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    When Should You Get Term Life Insurance? What You Need To Consider

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    A good life insurance policy is the best way to make sure that your family is taken care after you pass. It’s crucial to find a life insurance policy that suits your specific needs best while staying within budget. If you’re looking for a simple safety net without any extra frills and costs, term life insurance might be the way to go.

    Term life is an affordable and straightforward type of policy that guarantees protection without costing you an arm and a leg. But when should you get term life insurance? Are you ready for it? And is it worth it? We’ll be answering these questions and more in our comprehensive guide. 

    What Is Term Life Insurance?

    Term life is a type of life insurance that covers you for a specified period before expiring. Typically you can get a 10 year, 20 year, or 30 year term. Once the policy expires, say after an agreed-upon 30 years, you can either allow it to lapse, renew it, or convert it into another type of life insurance. 

    It’s the most common type of life insurance policy because of its accessibility and affordability. Term life insurance, however, does not offer a savings feature unlike permanent life insurance (also called whole life insurance). 

    Choosing a life insurance policy is largely dependent on your unique situation. You may want to consult a financial advisor to assess which type you should go for.

    How It Works

    After you buy life insurance and determine the payout amount or death benefit, the company determines a premium you’ll be paying regularly. Factors like your age, gender, and health condition will contribute to this. 

    When you apply for life insurance, you’ll be asked to disclose personal information, including your medical and family history, occupation, and lifestyle. Some policies may also ask you to take a medical exam. 

    If you pass away within the term of your life insurance policy, your beneficiaries will receive the agreed cash value. This is not taxable and can be used to pay off any remaining debt as well as ensure your loved ones will be taken care of financially. 

    Benefits

    Term life insurance is most attractive to younger people or those that only need insurance for a specific amount of time. Premiums are much lower than permanent life or whole life insurance, meaning you won’t break the bank for the time you are protected. 

    This policy offers a large amount of coverage with no added features, saving you even more for the extra bells and whistles that you may not need. 

    Disadvantages

    The downside of the simplicity of this type of life insurance is that the only cash value guaranteed is the death benefit. If your term expires before your death, and you don’t choose to renew, you won’t receive any payout. 

    In comparison, permanent life or whole life insurance, though much more expensive, offers an investment or savings component wherein you can accumulate cash that you’re eventually able to withdraw tax-free.

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    When Should You Choose Term Life Insurance? 

    Knowing when to buy a term life policy largely depends on your situation. A quick rule of thumb to determine if you already need life insurance is if you have dependents that rely on your income.

    If you're still young and single, you might not need to worry about it just yet. However, if you’re planning on starting a family in the near future, it’s a good idea to start looking into life insurance policies.

    This type of policy is best suited if you need to be protected for a certain time. A good example is if you have a family with young children. You will want life insurance that replaces your income in order to support your family if anything happens to you.

    Another reason a term life insurance policy may be the right option for you is if you want to pay off specific debt or to protect against start-up debt you might incur if you’re opening a new business. 

    This is also a great option for anyone simply looking for the most affordable life insurance coverage, even just for the time being. Most term life insurance policies can be converted to permanent life after your initial term ends, though you will want to double-check the deadline of conversion for your policy. 

    Types of Term Life Insurance

    If you’ve been wondering when to buy life insurance, you’ll want to know about the different types available. You might find one with benefits that cater specifically to your needs, saving you time and money!

    Level Premium

    Level or level premium is the most generic and common of this type of life insurance. As the name states, the premiums and the death benefit stay level throughout your policy. The predictable payments allow you to plan and budget long-term. Terms can last anywhere from 10 to 30 years.

    Decreasing 

    With this type of life insurance, your premium remains level but the death benefit slowly decreases over time. This is commonly only purchased as mortgage insurance through a bank. In the event of your death, the cash value of your insurance goes directly to the bank to pay off your debt.

    Annual Renewable

    Annual renewable is a type of life insurance with a one year term. Afterwards, it is renewable up to a certain amount of years. Premiums start below typical prices which then increase incrementally every year you renew. This may be ideal if you only need life insurance for a short time. 

    Return Of Premium

    This type of life insurance allows you to get the sum of your premiums paid back if you outlive your term. Premiums are typically higher, but you’re essentially able to get a refund if you don’t end up needing the death benefit. This may sound like a perfect solution, but there are pros and cons you’ll want to read about first.

    No Medical

    Most traditional life insurance policies will require a medical exam to check your health and risk level when you apply. As the name states, this type of insurance does not require one. This is attractive for those who are not eligible for most policies due to health issues, or for those who just want to skip the headache. 

    Group

    Group life insurance is typically offered in a workplace. This is a common benefit you should take advantage of, but not solely rely on. It isn’t portable from company to company, so if you leave or are let go and don’t have your own policy, you’ll be left without insurance. 

    Mortgage Protection

    This is a type of decreasing life insurance which is based on the length of your mortgage term. Your mortgage provider is listed as the beneficiary meaning they receive the policy’s cash value. This is a way of tying up loose ends and protecting your loved ones from inheriting your debt if you pass away.

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    Term Life Insurance Riders

    Life insurance riders are optional add-ons that offer features not included in your policy. Riders often allow for some financial protection while you're alive. Some give the ability to waive fees temporarily if you become disabled or allow you to receive a partial amount from the death benefit before you die. 

    Their main purpose is to enhance your policy, but some of them can be very expensive and might not be worth it for you. It’s advisable to consult a professional before adding riders to your plan. There are quite a variety of riders you can choose from, but we’ve listed several examples.

    Term Conversion

    This allows you to convert your term insurance into permanent or whole life insurance. It’s usually cheaper to convert an old 20 year plan than invest in a new one. 

    If you’re nearing or are in retirement and have incurred more health conditions, this rider allows you to skip medical exams that might otherwise be required with a new whole life plan. 

    Accelerated Death Benefit

    Also called a living benefits rider, this allows you to take out part of your death benefit to take care of yourself under qualifying circumstances. This includes terminal or critical illness, disability, or long term care.

    Accidental Death And Dismemberment

    This is an unusual add-on. It’s common for those that engage in riskier activities like extreme sports. It increases your coverage significantly but often isn’t worth it due to the much higher premiums.

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    How Much Term Life Insurance Do You Need?

    When you decide you need life insurance, when to buy life insurance, and what type you’re going to get, the next order of business is to determine the amount of coverage. Likewise, there is no general answer anyone can give you. 

    You’ll first need to consider your age and health. Do you have any health conditions that may drive up premiums or disqualify you? Next, you’ll want to estimate your financial needs. Below is a list of considerations you need to note down:

    • Outstanding debt, which includes credit card debt, student loans, car loans, and mortgages.
    • Dependents that rely on your income. They include immediate family such as spouses, children, aging parents, or even key employees if you own a business.
    • Savings and current income. You will need to ask yourself if this will offer enough of a financial cushion for your loved ones in case of emergencies or if not, how much insurance you’ll need to supplement it. You might also want to factor in how many years you or other primary income earning family members have left until retirement.
    • End-of-life expenses. One of the things your insurance policy must cover is funeral and burial costs. This should not eat into the amount you want to leave to your beneficiaries. 

    Online life insurance calculators are also quite useful if you want a quick estimate. Your safest and most accurate way of deciding how much coverage you need is always to consult a professional or trusted financial advisor. 

    Tips

    • Shop around with an independent broker or agent. They can help you find the best life insurance deals for your needs. 
    • Don’t settle on a life insurance policy right away. Do your research, read the fine print, and compare. 
    • Every life insurance policy will have something different to offer and will have varying standards on health conditions and lifestyle choices. Doing your due diligence in this area could end up saving you thousands of dollars. 
    • Look up a company’s customer service record and ratings. Remember, your life insurance is only as strong as the company you buy it from. Make sure they are trustworthy and reliable.
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    Conclusion

    Buying the right type of life insurance at the right time is tantamount to saving money and securing your future and the future of your family. With thorough research, evaluation, and consultation, you will be able to determine when to get insurance and if term life insurance is the way to go. 

    It may seem a little overwhelming, but with the proper guidance, you should be on your way to getting insured with the life policy you need. Wesley LLC can help you through all the steps and get you the answers to any questions you have along the way. Contact us now!

    Written By Cameron McDowell
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