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| Term Life insurance |
Life insurance
What is life insurance? First and foremost, it’s a way to protect your family and those who depend on you for financial support. It can provide a large, income tax-free payout to help them carry on if you pass away unexpectedly — and some policies have features that can help build family assets.
Term life insurance :
You want to protect your family from the financial problems they'll face if you're not there to provide for them. You need life insurance, but how much? Is term life insurance the right choice? What do you need to know before buying? In just a few minutes, we can help answer those questions. To get a better feel for how term life insurance works, you can start by using our calculator to get a no-commitment quote for a 20 year term life policy. In about a minute, you'll see an estimated coverage amount and cost per month. Or, just read on to learn more about term life.
How term life insurance works?
A term life insurance policy is an agreement between you and a life insurance company: You agree to pay a premium for a specific period of time (usually between 10 and 30 years); in return, there is a guaranteed death benefit that the company promises to pay to your beneficiaries (typically your family). The death benefit is almost always paid out in an income tax-free lump sum of cash.
Term life insurance is simpler and typically more affordable than permanent life insurance, such as a whole life insurance policy that provides life-long protection. Whole life policies have an added "cash value" component that can build up a valuable tax-deferred asset – money you can use during your lifetime.3,4 A term life policy has no cash value component: once the life insurance term is over, there's no value or payout to your family.
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| Benefits of Term Life Insurance |
Benefits of Term Life Insurance :
Affordability:
Term life insurance tends to be more affordable than permanent life insurance policies. Since it provides coverage for a specific term and lacks a cash value component, the premiums are generally lower, making it a viable option for those on a budget.
Flexibility:
Term life insurance policies offer flexibility in choosing the term length. This allows you to align the coverage period with your specific needs. For instance, you might want a policy that covers your mortgage’s duration or provides financial support until your children are financially independent.
Simplicity:
Term life insurance is relatively simple to understand, making it accessible for many individuals. Unlike some other insurance types, there are no complex investment components to consider, and you can focus solely on the death benefit and coverage period.
Peace of Mind:
Life is unpredictable, and having a term life insurance policy in place can provide peace of mind knowing that your loved ones will be financially protected if the worst were to happen.
Different ways to think about how much coverage you need?
"How much insurance do I need?" is a common question. The answer depends mostly on where you are in life and how many family members rely on your income. In general, the younger you are, the more coverage you'll need to compensate for the years of potential wage-earning ahead of you. And the more family members depend on you, the more coverage you'll want for income replacement if you die.
Our calculator uses Human Life Value to help determine coverage assumptions based on what you're earning now and what you expect to earn for your family in the future.7 If you're between the ages of 18 and 40, you multiply your current income by 30; as you get older and have fewer working years left, that multiple decreases. It's a rough estimation method, but there are others, such as the DIME method, which looks at your Debts, Income, Mortgage obligations, and Education goals for any children in your family.
10, 20, or 30 years? How to choose a term length :
One of the biggest questions people have about term life insurance policies is, "How long do I need coverage?" If you have children, a popular rule of thumb is to choose a term long enough to see them out of the house and through college. As noted, the longer the term, the more insurance policies cost. Nevertheless, it usually pays to err on the side of getting a longer term policy than a shorter one: A person at age 30 will pay less overall for a 20-year policy than they would for two consecutive 10-year policies – because when they renew, they'll have to pay the rates of a 40-year-old.
How to buy term life insurance :
A good place to start is your workplace, as your employer may offer life insurance at lower group rates. If offered, think about enrolling. It's generally cost-efficient and easy to buy. Your employer has done the work of finding a policy, and enrolling typically requires little more than signing a form. You may be able to obtain this coverage without taking a medical exam or providing medical records. However, the coverage amount offered may be limited, and you might want more protection to help provide financial confidence to your loved ones. Fortunately, other options are available.
What is the cost of a $500,000 term life insurance policy?
Term policies can be more cost-efficient than you might think. A female, age 30, who doesn't use tobacco can get a $500,000 20-year term policy from Guardian for just $27 a month. The same coverage amount in a 10-year term policy is even more cost-efficient: only $20 per month.
Do you get your money back at the end of a term life insurance?
Most term life policies have no face value once the term ends. The exception: A "return of premium" policy that pays back all or a portion of your premiums if you live to the end of the term. However, premiums for this type of policy can be 2-4 times higher than a regular term policy.
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