A 60-Second Guide to Term Life Insurance
So you’re looking for information on term life insurance? You’ve come to the right place! Here’s your quick and not-so-dirty guide to term life insurance: what it is, how it works, why you need it, how much it costs, and how to buy it.
What is Term Life Insurance?
Term life insurance is a little like car insurance. You pay for car insurance every month, but it only kicks in if your car gets damaged for an insurable reason.
In the case of term life insurance, though, the insurable event is, unfortunately, your own demise. Term insurance policies will provide your beneficiaries (read: whoever you name to receive the funds) with money upon your death.
How Does it Work?
Term life insurance policies have a few components, which we’ll define here quickly:
- Premium: This is how much the policy costs, usually stated either on a monthly or an annual basis.
- Term: This is the length of time for which you’re insured. As long as you continue to pay the premium, you’re guaranteed coverage through your term. Typical terms are between 10 and 30 years.
- Death Benefit: This is how much money your beneficiaries will get if you pass away from insurable causes during the term. Typically, benefits start at around $10,000, but they can go well into the millions.
So here’s how all of these work together. When you purchase a term life insurance policy, you choose your death benefit and your term. The insurance company sets your premium–based on these two numbers plus a variety of factors that tell them how risky you are to insure.
You pay your premium monthly or annually. If you’re still alive when the term is up, the insurance company keeps their money. But you’re still alive, so, yay! If you die during the term, that stinks. But your beneficiaries get the death benefit from the insurance company.
It’s as simple as that.
Because it’s so simple, we call term life insurance a “pure” insurance product. As opposed to whole or universal life insurance which includes an investment portion, making it a lot more complicated.
Term life insurance is just that: insurance. It’s like car insurance or homeowners insurance. You have it because you might need it. But you hope you never have to use it.
Why Do You Need It?
Most adults need some form of life insurance coverage. Here are some reasons you might need it:
- Your estate or loved ones will have to pay off debts if you pass away.
- You have dependent children you’d want to care for financially in the event of your death.
- Your roommate or live-in partner would be stuck with your half of the household expenses.
- You have elderly parents or a disabled sibling counting on you for financial support.
- You just don’t want to stick your family with your funeral and other end-of-life expenses.
In short, there are lots of reasons you might need term life insurance. And there are lots of ways to calculate how much coverage you need. We’re not tackling that long-winded issue here, though. You can check it out in this article.
How Much Does It Cost?
Here’s the good news: for healthy people, term life insurance is pretty cheap. You can get $100,000 of coverage for just a few bucks a month.
With that said, your mileage may vary. The younger and healthier you are (read: the less likely to die during your chosen term), the cheaper the insurance will be. But compared with other life insurance products, term will nearly always be the cheaper option.
How Do You Get It?
Luckily, purchasing term life insurance is easy. Plenty of online platforms will now give you a quote based on some basic information. Two of our favorites are Haven Life and Policy Genius.
- Haven Life underwrites it’s own life insurance policies (through Mass Mutual) and I know this is where a few coworkers obtained their term life insurance policies.
- Policy Genius is an online quote engine for term life insurance and contains most major underwriters.
You may, however, need to undergo a basic medical examination before the policy can be completed. This usually includes a nurse coming to your house to weigh you, check your blood pressure, and possibly take a blood and/or urine sample.
The insurance company is just looking for any health factors that may make you more likely to die during the term–and thus more expensive to insure.
So that’s it! This was just a quick guide to term life insurance, though. If you need more information, check out these articles: