Many people who haven’t yet purchased life insurance have a small barrier to getting insured that has nothing to do with money. They are simply putting it off because they fear that learning enough to make an informed decision will be a long and tedious process, or that they will get sold to by aggressive insurance salespeople. I created this insurance guide to help with the first reservation and possibly eliminate the second. Today is term life, and we can do this in one article.
One of the easiest life insurance questions to answer is: what is a term life insurance policy? The reality is that it is a good starting point for learning generally about insurance on your life, for exactly that reason. If you can get a good understanding of what term life insurance is, as well as a couple of variations of it, eg. level term and group term, you’ll have made good progress in starting to decide what life insurance is best for yourself and your family.
Term life is the original form of life insurance. It provides coverage on your life for a specific time period, for a pre-determined monthly premium amount. If you pass away during that period, the people you name as beneficiaries, ie your loved ones, receive the ‘death benefit’ payout carried by the policy. If you outlive your policy, you get nothing at the end of its term. It’s that simple. A term policy is much cheaper than so-called ‘permanent life insurance’, because permanent life carries with it a guaranteed payout. One must balance the peace of mind one can buy at a low price while one is young, with term life, against the possibility that they will be middle aged without life insurance. They will have saved a lot of money over decades by not paying the higher permanent life premiums. If one could invest that money well… Term vs permanent is the real question to answer when determining the life insurance that is best for you and your family.
This explanation of term life wouldn’t be complete without answering the two questions to which I alluded earlier, what is level term life insurance and what is group term life insurance.
Level term is simply term life where the premium amount does not change for a guaranteed period of years. It exists as the alternative to an annual renewable term insurance, and is much more common: few people really want life insurance for just a few years. One thing to remember about level term is that the longer the term, the higher the monthly premiums are likely to be, as the later years of the policy insure you when you are slightly more likely to be in poor health. Also, it may be possible to extend your level term policy via a renewal option, but you must be very careful to ensure that this provision is included in your policy if you think you might want it later. It would be a way of getting around the problem of being in your 50s or later without life insurance after having spent decades paying into a non-renewable term policy.
Group term usually is part of a benefits package that an employer provides to employees.
By the way, if you arrived here wondering what is term life insurance and whole life insurance, know that they are different enough to leave whole life for a different article entirely, which you will find at the last link.