Term life insurance is exactly what the name depicts; life insurance at a fixed rate for a predetermined term or time frame. Once the term is over, the client must obtain further coverage with new conditions/rates.
Term life insurance is used primarily as a death benefit to aid the dependents of the deceased. This can cover debt, funeral costs, and even for future use by such dependents. Common use of term life insurance is due to the cheaper rates over regular insurance. The premium paid is based off how likely it is that the insured will die over the given term of the plan. For most, term life insurance is used only until there is sufficient funds within a savings plan to comfortably cover these expenses should an unexpected death occur.
The most common form is level term life insurance. Rather than renewing yearly, premiums can be locked in for terms of 10, 15, 20, and even 30 years. Most policies will have some form of option to convert to a Universal or Whole Life policy. This is very beneficial to individuals who have contracted some sort of illness that would cause them not to be able to renew their term life policy. These options usually don;t last through the entire term of the life insurance and are only convertible up to a certain age.
Here are some rates based on a 20-year $500,000 level term policy from USAA.
While not everyone needs life insurance, many people do for specific financial planning reasons. The big question is what TYPE of life insurance is appropriate. More often than not buying term is the most appropriate way to go. Whole life insurance can prove to be an inefficient vehicle for insurance, and in most cases insurance coverage and investing just shouldn’t be mixed together.
We recommend a low load low cost provider out of Florida for most of our clients insurance needs. As a fee only financial planner – we never accept any commissions from the sale or recommendation of any insurance products.
