It’s time to talk term life insurance

Death is a tough but important topic to discuss, especially if you have others who financially depend on you. What will happen to them if you’re no longer around? That’s where life insurance kicks in. 👞

1. What exactly is term life insurance?

Life insurance is a risk management tool that pays out a lump sum to your “beneficiary” if you die within the length of the term “policy” (some vocabulary may be unfamiliar, but keep reading and I’ll explain).

Shopping for life insurance? Learn the top 5 tips for first-time life insurance shoppers.

2. How does a term life insurance policy work?

A term life insurance policy is a written contract between an insurance company and an individual. You can take out a policy on yourself, OR your significant other can take one out on you. Sound pessimistic? Well, it’s actually very common for a person to have a life insurance policy on their spouse. You say pessimistic, we say practical!

3. What are monthly premiums?

The policyholder pays monthly premiums (payments) for a set amount of time to the insurance company in exchange for coverage. If nothing happens to the individual during that time, the insurance company keeps the money. This is very similar to how car insurance works. 🚘

4. How much is it going to cost?

Term life insurance costs, on average, between $25 and $35 monthly. The cost depends on the amount of coverage (i.e., the amount to be paid to your beneficiary in the event of your death) and other factors, such as:

  • Age: Usually, the older you are, the more you’ll need to pay for life insurance coverage. This is because as you get older, health generally declines and the likelihood that the policy will need to get paid increases.
  • Health status: When you apply for life insurance, you will typically need to take a medical exam and answer questions regarding your family's health history. This helps insurers determine how healthy you are and the likelihood you will get sick.
  • Driving record: A motor vehicle report helps insurance companies see if you’re a reckless driver and if you’re likely to get into a car accident.
  • Hobbies: What you do on the weekends also helps determine the amount of your coverage. The more dangerous your hobbies, the higher coverage amount will be. Scuba divers and rock climbers, beware. 🧗‍♂️

Check out this blog to find out how much life insurance coverage you need.

5. Who can be my beneficiary?

A beneficiary is really any person whom you designate to receive the funds of your life insurance policy (should you bite the dust). There are usually two types of beneficiaries: A primary beneficiary and a contingent beneficiary. If the primary beneficiary is no longer around when your policy kicks in, the money would then go to your contingent beneficiary.

6. What is an insurance rider?

Riders are an important aspect of life insurance policies and help meet the specific needs of a policyholder. A rider adds or changes the coverage amount or terms of the policy, usually for an additional cost. For example, one of the most popular riders is the Guaranteed Insurability Rider, which guarantees that an individual can purchase additional coverage at a specific time without having to undergo an additional medical exam.

There are many different types of riders out there, and it’s important to read and understand each one as it relates to the policy you are purchasing.

7. Who needs life insurance?

Anyone who has someone who is financially dependent on them should consider buying life insurance. The financially dependent person may be a spouse, child, parent, or sibling. Many times, new parents purchase a policy that would help pay for their children’s schooling and other expenses should one parent die.

8. What about permanent life insurance?

Permanent life insurance is the term used to describe policies that do not expire. This type of insurance usually combines both a death benefit and a savings portion, which is put into an investment account to build value over time.

Permanent life insurance can be very complex, to learn the basics, check out the pros and cons of permanent life insurance.