How Does Term Life Insurance Work?
Insurance can seem complicated, but we’re here to make it easy.
In short, you pay an insurance company a set amount of money each month for an agreed upon amount of time. That’s the “term” in term life policy. Bestow sells term life insurance for 10 & 20 year terms. If you pass away during that term, your beneficiary (the person you choose to receive the benefit) gets a payout. And that payout is determined by what value of the policy you purchased. If you buy a 20-year, $1 million dollar policy and pass away during that 20 year term, your beneficiary gets $1 million.
You simply begin by deciding how much coverage you want and how long you want it. Then you find a company like Bestow that sells term life insurance to get a quote. That’s an approximate price you might pay if approved for a life insurance policy. You can get a quote in under a minute here.
Once you have applied, you may be approved for coverage and can pay for your policy to begin immediately. Some insurance companies will require medical exams or blood tests, which can take a month or more (At Bestow, we never require a medical exam!). Some applicants, however, will be denied coverage. Companies often will not extend coverage to people with certain circumstances. Often times that is a pre-existing medical condition or legal convictions for risky behaviors, but can vary by carrier.
A term is the amount of time you will be covered by a policy and pay a monthly premium.
Some people want 20 years of coverage – the “set it and forget it” policy. Others may only need 10 years of coverage and can reassess their needs in the future. That’s the term. And it’s up to you. There are even carriers that offer 30+ year term lengths.
Of course, there are a lot of factors to consider and we can help.
As you begin to evaluate your insurance needs, you’ll want to select the coverage amount you’re interested in. How much money do you want your loved ones to receive if you should pass away? This is called the payout. This decision is based on a lot of personal factors like income, debts and future plans. But the benefit amount of plans can vary wildly.
For instance, if you support a family, you’ll want them to be able to maintain their style of living if you pass away. Many experts recommend 5-10 times your annual income in coverage. Only you know what your family would need to get by, so it’s important to consider a variety of factors. Start with your debts, including mortgages, student loans, and even small business loans and vehicles.
If you have children, do you plan to pay for their college tuition? If you have a stay-at-home spouse, how will they be able to support themselves?
In addition, end-of-life expenses including medical bills, hospice care and funeral costs add up quickly and can burden grieving families.
Of course, the more coverage you take out, the more you’ll pay monthly. That’s your life insurance premium. And based on several factors, that can vary greatly.
If you’re wondering how much life insurance costs, look at the premium. That’s what you’ll owe each month.
We can offer some guidance here too.
It’s tempting to take out a large policy, but with that comes large premiums. And if you default on premiums, your policy may be canceled. Consider your needs, but also your budget.
Read the Fine Print
Many insurers require you to get a medical exam and submit a blood sample to gauge your current health. This is to determine if you have any preexisting medical conditions that make you uninsurable. Bestow is one of the few companies that never requires medical exams to determine insurability.
There are a lot of different companies offering a variety of insurance products, many including riders. A rider is an additional policy benefit, that often raises your premiums. Examples include a terminal illness rider that allows you to begin collecting benefits if you are diagnosed with a terminal disease. Some companies offer a child rider, which adds your child to your life insurance plan.
It’s also important to know what types of circumstances your insurance policy will cover. Not every death will result in a payout.
Term Life Insurance can cover:
It typically doesn’t cover:
- Suicide within an initial period after coverage begins
- Acts of war
- High risk activities like auto racing, boat racing, mountain climbing or scuba diving.
An insurance agent can help you find the right insurance product to suit all of your needs, particularly if you have very specific needs and financial goals. But these days, having an agent isn’t necessary for many types of life insurance coverage. Simple term life coverage can be bought online. In just minutes, you can be a proud policy holder.
How Term Life Insurance Compares
You’ve probably heard of whole life insurance or universal life insurance. These are both permanent life insurance policies that feature higher premiums and no expiration. In some cases, a whole life policy may offer a cash value, if you do decide to cancel it. It’s important to understand the different types of life insurance.
Bestow only offers Term Life Insurance. It’s different, in that you typically pay less. And you are only covered for a period of time you think life insurance is most necessary. Thanks to its relative affordability, term life insurance may be what makes the most sense for you.
You may have also been offered the chance to acquire a new policy at work. And that’s great, because the premiums are often subsidized by your employer. But this coverage is often no more than one year’s salary. For most families today, this simply isn’t enough coverage and it vanishes when you leave your job or are sick and can’t work, and many people consider this type of life insurance supplemental.
20 years seems like a long time
We get it. Twenty, even ten years, feels like a major commitment. The good news is that you can walk away from your coverage at any time without a penalty. But you won’t get your money back (a term life policy has no cash value), so it’s important to select a coverage option with premiums you can manage so there is less chance of cancelling. The major benefit of taking out a longer policy is that you’ll lock in your premium at the age you are now. Rates often go up as you get older and your health may change for the worse.
Who gets my payout?
Most people choose a spouse or child. You could select a sibling or set up a trust for a minor or even a pet – though that gets a little more complicated and requires an attorney. Essentially, someone whose finances could be adversely impacted by your death.
But the big perk here is that your payout doesn’t go through probate (like a will would), giving your beneficiaries a lump sum cash payment right away for things like funeral expenses and other bills. And in most cases, the death benefit is tax-free.
When do people typically buy life insurance?
Most people start to think about life insurance when they start a family or buy a home, but the truth is, it’s always a smart time to start buying life insurance. That’s because in most cases, it will never be as affordable as it is today. Yup. Right now. Your premium rate is determined by a number of factors including your age and health. The rate you get at 25 will differ from the rate you get at 35. What are you waiting for? Get a free quote today.