Term life insurance
Term Life Insurance - What It Is & How It Works
Wondering what's term life insurance? Learn everything about it in this blog post. From how it works to how to choose the best type for your family.Get your free quote
- Term life insurance is a type of policy that provides coverage for a specific period of time, also known as the term.
- Term life insurance is generally the most affordable option for life insurance and can provide valuable financial protection for your loved ones in the event of your unexpected death.
- There are several different types of term life insurance available, including fixed term life, yearly renewable term life, decreasing term life, and term life with return of premium.
- It is important to consider your specific needs and goals when choosing a term life insurance policy and to speak with a trusted financial advisor to determine the best fit for your individual situation.
- Eligibility for term life insurance is based on a combination of age, health, and lifestyle factors, and the premiums may be higher for seniors or individuals with pre-existing conditions.
- To make a claim for term life insurance, it is important to contact the insurer, provide necessary documentation, submit a claim form, and wait for the claim to be processed.
- It is possible for a senior to obtain term life insurance, although the premiums may be higher and coverage may be more limited depending on the individual's age and health.
What is term life insurance?
Term life insurance is a type of life insurance that lasts for a set period of time and offers a temporary coverage. As explained further below, you choose the length of your term insurance coverage based on your financial security needs.
In the event of your death, a fixed tax-free amount is sent to the people you name (your beneficiaries).
How does term life insurance work?
As a policyholder, you can choose the amount of coverage you want and designate a beneficiary who will receive the death benefit in the event of your unexpected death. The death benefit is a lump sum of money that can be used to cover expenses such as funeral costs, outstanding debts, and future living expenses for your loved ones.
Term life insurance is different from other types of life insurance, like whole life insurance or universal life insurance, because it does not have a savings component. This means that there is no cash value accumulation over time and the policy only provides coverage for the designated term.
What’s the benefit of having term life insurance?
- One of the main benefits of having term life insurance is the financial protection it provides for your loved ones in the event of your unexpected death.
- If you pass away during the term of the policy, the insurer will pay the designated beneficiary a death benefit, which can be used to cover expenses such as funeral costs, outstanding debts, and future living expenses for your family.
- Term life insurance is generally the most affordable option for life insurance, making it a practical choice for many individuals. It allows you to choose the term length and coverage amount that best fits your needs and budget. This flexibility allows you to tailor the policy to meet your specific goals and protect your loved ones in the way that is most important to you.
- In addition to the financial protection and affordability, term life insurance also offers peace of mind knowing that your loved ones will be taken care of no matter what happens. It can provide security and stability for your family during this difficult time and allow them to focus on their grief rather than any financial stress.
Term Life vs. Whole Life Insurance
When considering life insurance options, you may be wondering if term life or whole life insurance is the best choice for you. Both types of insurance provide financial protection for your loved ones in the event of your unexpected death, but there are some key differences between the two.
Term life insurance is a type of policy that provides coverage for a specific period of time, also known as the term. The term can range from a few years to several decades, depending on the policy. If you pass away during the term, the insurer will pay the designated beneficiary a death benefit, which is a lump sum of money that can be used to cover expenses such as funeral costs, outstanding debts, and future living expenses.
Whole life insurance, which is a type of permanent life insurance, provides coverage for your entire life. Unlike term life insurance, permanent life insurance premiums can be fixed for your entire life. In addition to the death benefit, whole life insurance also has a savings component that accumulates cash value over time. This cash value can be accessed through loans or withdrawals, and can be used to supplement retirement income or pay for unexpected expenses.
The different types of term life insurance
As mentioned earlier, term insurance is the simplest type of life insurance to understand. However, simplicity doesn't mean lack of flexibility.
Here are the common term life insurance options:
Fixed term life
This type of term life insurance provides coverage for a set period of time, such as 10, 20, or 30 years. It is a good choice for individuals who are looking for long-term protection and want the peace of mind of knowing their coverage will not change during the term.
Yearly renewable term life
As the name suggests, this type of term life insurance renews annually and can be a good choice for individuals who need coverage on a short-term basis or who are unsure about their future needs. It is important to note that the premiums for yearly renewable term life insurance typically increase each year as the policyholder gets older.
Decreasing term life
This type of term life insurance has a death benefit that decreases over time, usually in conjunction with a decreasing mortgage balance. It can be a good choice for individuals who are looking to protect their family from a mortgage and want to ensure that their coverage decreases as the mortgage balance decreases.
Term life with return of premium
This type of term life insurance provides coverage for a specific period of time and offers the added benefit of returning the premiums to the policyholder if they outlive the term. It can be a good choice for individuals who are looking for long-term protection and want the added security of potentially getting their premiums back.
No medical exam term life
As the name suggests, this type of term life insurance does not require a medical exam and can be a good choice for individuals who may have difficulty qualifying for a traditional term life policy due to health issues. It is important to note that premiums for no medical exam term life insurance may be higher due to the added risk for the insurer.
This type of term life insurance is typically offered through an employer or other organization and can be a good choice for individuals who want the convenience and affordability of group coverage. It is important to note that group life insurance may not provide as much coverage as an individual policy and is usually not portable when you leave the group.
Mortgage life insurance is a type of term life insurance that is specifically designed to pay off a mortgage in the event of the policyholder's death. It can be a good choice for individuals who want to ensure that their loved ones are not burdened with a mortgage in the event of their untimely death.
Convertible term life insurance
This type of policy allows you to convert your term life insurance into whole life insurance or universal life, without the need for additional underwriting.
This can be a good choice for individuals who want the flexibility to switch to a permanent policy in the future without going through the process of applying for a new policy. It is important to note that premiums for convertible term life insurance may be slightly higher due to the added flexibility and potential for conversion.
How much does a term life insurance policy cost?
Because it covers your loved ones for a limited period of time, term life insurance premiums are less expensive than permanent life insurance policies. It's a temporary solution that allows you to provide financial security while your loved ones are still depending on you.
The price of your life insurance will depend on several factors:
1. Your health
Like all types of insurance, life insurance is there to protect you in the event of an unexpected death. The more likely you are to die or become ill, the more insurers will increase your premiums. You will need to provide the results of your last medical exam, if applicable. For example, if you are a non-smoker, you will pay less in premiums. This explains why premiums are higher for people in poorer health or who take part in riskier activities at work or in their free time.
2. Your age
Insuring yourself at a young age will cost you less, as you are less likely to die unexpectedly. Every year you wait to insure yourself, the price of your policy will increase by 8 to 10%.
Your lifestyle can affect the price of your insurance premiums. For example, if you are a thrill-seeker and go skydiving once a year, your premiums may be more expensive than if you had a less dangerous lifestyle, such as playing chess for a living.
4. The amount of insurance
The higher the amount of life insurance, the more you will pay in premiums for your life insurance. Likewise, the longer the term of your insurance coverage, the more expensive it will be. That's why it's important to speak with an advisor to determine what's best for your needs.
Riders are additional coverages that you decide to add to your coverage for an additional fee to your premiums.
If you're wondering when to buy your life insurance and what coverage to get, make sure you understand how your age affects the price of your insurance premiums based on the length of coverage you want.
How to choose the right term life insurance policy
Choosing the right term life insurance policy can be a daunting task, but it's still an important decision to make to be able to protect your loved ones financially. Here are some tips for choosing the right term life insurance policy for you:
- Determine your coverage needs: Do you have any dependent? How long will it take to clear your debts (mortgage, car loans, credit cards)? Do you wish to use term life as a way to leave inheritance?
- Consider the term length: Term life insurance policies come in a range of term lengths (1, 10, 20, 30 years). It is important for you to consider the length of the term and whether it aligns with your specific needs and goals.
- Consider any exclusions or limitations: It is important for you to carefully review the policy exclusions and limitations to ensure that you are fully aware of what is covered and what is not.
- Get advice from a life insurance agent: It is a good idea for you to speak (or chat) with a trusted life insurance agent to review the policy and ensure that it meets your specific needs and goals.
How much coverage can my term life insurance have?
This depends on several factors, including your age, health, and financial situation. As for the maximum amount, it will always depends on the life insurnce company. At Emma, you can get up to $1M in term life coverage.
But make sure to consider your specific needs and goals when choosing your term life coverage. You can chat with one of our agents, we can help you understand your financial needs in no time.
Our term life insurance products:
Term life 1 year (T1)
This type of term life insurance covers you for a period of one year. In most cases, it is used to pay the lowest price and save in a very short-term. It can be a good choice if you are unsure how your financial situation will be in 2 to 3 years, but still want to protect the ones you love.
Term life 10 years (T10)
This type provides coverage for a 10-year period and can be a good choice if you're looking for long-term protection but don't want to commit to a longer term policy.
Term life 20 years (T20)
This is our most popular one! The T20 covers you for a 20-year period and is the perfect plan if you're looking to save money on premiums on a long-term period.
Note that each product (T1, T10, T20) are renewable automatically without the need to prove your eligibility. So make sure you consider your health status, and your risk tolerance when choosing your term life insurance products.
If you are unsure wich one of our term life insurance plans is best for you, our team of life insurance agents will be more than happy to assist and to guide you through your life insurance application.
Am I eligible for term life insurance?
Most insurers will consider your age, medical history, and any pre-existing health conditions when determining your eligibility for a term life insurance policy.
It's important to note that term life insurance rates are generally more affordable for younger, healthier individuals - and if you’re in good health and don't have any pre-existing conditions, you’re more likely to be eligible for a term life insurance policy and be able to secure a lower premium.
Lifestyle factors, such as tobacco use, can also impact your eligibility for term life insurance. Most insurers will charge higher premiums for individuals who use tobacco products, as they are at a higher risk for certain health conditions.
If you have any pre-existing health conditions or lifestyle factors that may impact your eligibility for term life insurance, it is important to be honest and transparent with the insurer. Lying or withholding information on a life insurance application can result in the policy being denied or terminated.
Your term life insurance policy has expired and you are still alive?
If so, you will no longer be covered by your insurance and you will stop paying your monthly or annual premiums.
Still want to be covered by life insurance? You can either purchase a new term policy or convert your term life insurance policy to permanent life insurance. Note that your second term life insurance premium will be more expensive than your first.
If you had a return of premium clause in your policy, the insurance premiums paid during your term insurance coverage will be refunded.
Understanding the term life insurance death benefit
If you die while covered by your term insurance, the insurance proceeds will be sent to your beneficiaries, tax-free. In effect, the insurance amount paid to the named individuals is a tax-free amount of money that can be paid out in a variety of ways.
While most people prefer to have the money transferred at once, it is possible to receive it, for example, in recurring payments over a specific period of time. The death benefit amount can grow in value through interest, but the amount earned in interest is taxable.
Note that insurance policies will not pay out a death benefit in certain cases such as fraud or suicide.
Understanding the age limits of term insurance
As mentioned earlier in the article, the length of term insurance is up to you. It varies, in most cases, between 10 years, 20 years and 30 years and will generally last until you reach age 65. However, the legal age limit for term insurance is 85.
It is important to understand that term insurance provides protection for temporary debts such as a mortgage, car lease or other loans. So it's not the kind of insurance we look for in retirement, obviously.
Frequently Asked Questions
How to make a claim for term life insurance?
- Contact the insurer: It is important to notify the insurer as soon as possible after the event that triggers the claim. This can usually be done by phone or through the insurer's website.
- Provide necessary documentation: The insurer will typically request a copy of the death certificate and any other relevant documentation, such as a police report if the death was accidental. It is important to gather and provide all required documentation as soon as possible to expedite the claims process.
- Submit a claim form: The insurer will typically provide a claim form that needs to be completed and returned. It is important to fill out the form accurately and completely to avoid delays in the claims process.
- Wait for the claim to be processed: The insurer will review the claim and any supporting documentation to determine the validity of the claim. This process can take several weeks or longer, depending on the complexity of the claim.
- Receive the death benefit: If the claim is approved, the insurer will pay the designated beneficiary the death benefit, which is a lump sum of money that can be used to cover expenses such as funeral costs, outstanding debts, and future living expenses.
Should I be concerned when my term life insurance ends?
Of course, it can be scary to be without life insurance. That's because you've put this coverage in place to avoid embarrassing the people who rely on you financially.
However, your reality will likely have changed by the time your insurance ends. Ideally, you will have finished paying your mortgage, your children will be independent, your debts will have been reimbursed and you will have put money aside in a pension fund.
There is little reason to continue paying for life insurance when financial instability is no longer a part of your life.
Can I get my money back at the end of the term?
It is possible to get your money back at the end of the term of your term life insurance policy if you have a term life insurance policy with a return of premium feature. This type of policy provides coverage for a specific period of time and offers the added benefit of returning the premiums to the policyholder if they outlive the term.
If you do not have a term life insurance policy with a return of premium feature, it is not possible to get your money back at the end of the term. However, it is important to note that term life insurance is generally the most affordable option for life insurance and can provide valuable financial protection for your loved ones in the event of your unexpected death.
Can a senior obtain term life insurance?
Yes, it is possible for a senior to obtain term life insurance. While term life insurance is generally more affordable for younger, healthier individuals, it is still possible for seniors to obtain coverage - But
the premiums may be higher for seniors due to the increased risk for the insurer. It’s also possible that coverage may be more limited for seniors, depending on the insurer's underwriting guidelines.