How term life insurance can protect your family and save money

BY TIM MAXWELL

GETTY IMAGES/ISTOCKPHOTO

Life insurance can give you peace of mind by providing a financial safety net for your loved ones after you pass away. When you purchase life insurance, you'll have to choose between term life insurance or a permanent (whole) policy. Unlike permanent life insurance, which lasts your entire life, term life insurance lasts for a specific period, typically from one to 30 years.

Term life insurance is the most popular type of life insurance because it's significantly less costly than other options while still covering the financial needs of your beneficiaries once you pass. 

If you're in the market for life insurance - or simply want to increase the protection you already have - speak to an expert who can help you.

Understanding how term life insurance works and its advantages and disadvantages can help you decide if it's right for you.

What is term life insurance?

Term life insurance is a policy that provides a lump-sum tax-free payout—called a death benefit—to your loved ones if you die while the policy is active. If you have dependents who rely on your income, the death benefit can provide funds to your beneficiaries to cover their bills, pay for burial expenses, or help with other important purposes.

When purchasing a term life policy, you must decide on the length of the term and the coverage amount you need. Term life insurance is a popular choice because it's affordable and lasts as long as you need. 

How term life insurance works

Term life insurance is flexible and cost-effective, offering a specific death benefit for a defined term, such as five, ten, 15, 20, or 30 years. Some policies cover you up to a specific age, such as 65. 

Once your term expires, you may renew your policy. You may also be able to convert your policy to a whole life insurance policy without taking a medical exam, as permanent policies usually require. Be aware, however, that a permanent life policy will likely be more expensive than a term life policy.

Insurance companies set your premium rates based on several factors, including age, gender, health, and coverage amounts. Premiums are typically paid monthly or annually.

Most term policies come with a level death benefit, which means your premium and the value of the death benefit stays the same for the entire term, whether you die in the first year or near the end of your policy term. By contrast, you can opt for a renewable term policy with premiums that may increase yearly.

Some policies come with a return of premium feature, which refunds a portion or all of the premiums you paid if the death benefit isn't paid out at the end of a level term period. However, policies with this option are more expensive.

If you're considering a term life insurance policy you can get started today. Multiple providers can help get you set up. 

Pros of term life insurance

Term life insurance comes with many advantages, including:

• Low costs: Life insurance rates are usually more affordable for term than permanent life insurance because policies are for a specific period, not your entire life. The insurer inherits less risk because your beneficiaries won't receive a death benefit if you outlive the term and the policy expires.
• Flexible terms: You can choose the term you want to ensure you don't pay for more insurance than you need. You can purchase coverage for a period ranging from one to 30 years.
• Simplicity: Compared with other life insurance types, term life insurance is usually simple and easy to understand. Unlike permanent insurance, term life insurance doesn't come with cash value accounts, interest rates, and other features you must manage. Term coverage has one primary purpose: providing life insurance protection for your family financially when they need it most.

If term life insurance sounds like something beneficial for your needs then consider starting the process today. Begin with a free quote so you know exactly what to expect.

Cons of term life insurance

It's always wise to consider both the benefits and the downsides of any financial product before making a decision. Here are some of the disadvantages of term life insurance:

• Rising premiums: The primary downside of term insurance is that your premiums increase every time you renew your coverage because of the likelihood of dying increases with age. Consequently, term insurance can become too costly when you are older and need it more. 
• Limited coverage period: Term life insurance offers temporary coverage, which can expire without paying out a death benefit if you don't pass away during the term.
• No cash value: Unlike permanent life insurance, term life doesn't build cash value, a savings account that grows tax-deferred over time. If you cancel your term policy, you won't receive any refund or cash out unless your policy has a return of premium feature. By contrast, permanent life insurance provides surrender value based on your cash savings account value, minus fees, balances owed, and other circumstances.

How much do term life insurance policies typically cost?

Term life is significantly less costly than permanent life insurance for similar coverage amounts, mainly because it only lasts for a specific period rather than your whole life. If price is a concern, term life may make sense for you.

Keep in mind, term life insurance will cost you more as you get older, even if you're in good health. Generally, men pay more than women for term coverage.

Generally speaking, term life insurance is an affordable option to provide financial security to your loved ones after you're gone. If you decide to buy term life insurance, it's wise to ask your agent if the policy is renewable and if the premiums will increase during the term.

Have more questions? Reach out to a life insurance professional who can help you.