How Does Term Life Insurance Work?

I have had term life insurance since my 20s. I plan to keep my policy until my assets can cover any debt I might incur.

Importance of Term Life Insurance

If an adult passes away prematurely, term life insurance helps pay off debt, cover living expenses, and save for the future. This type of insurance is recommended for adults who have any of the following:

• Debt

• Dependents

• Caregiving responsibilities

• The need for a monthly income

• A desire for long-term savings

Lengths of Term Life Insurance

Term life insurance lasts for a specific time, such as 10, 20, or 30 years. The policy length should match an individual’s or family’s longest financial obligation, such as a mortgage. If the policyholder passes away and the premium payments are current, the insurer will pay a sum of money to the beneficiary or beneficiaries.

Ideally, life insurance should not be needed by the time the coverage ends. The mortgage will be paid off, any children would be out of the house, and there would be enough savings for financial security.

Attractiveness of Term Life Insurance

The following are reasons why many adults find term life insurance attractive:

• Easy application process

• Inexpensive, predictable premiums

• A duration for when coverage is needed

Reasons to Choose Term Life Insurance

Many adults purchase term life insurance for these reasons:

• A spouse or child financially depends on the adult.

• The adult’s death would financially burden others passed away prematurely.

• Someone would need to take over the caregiving or household tasks if a stay-at-home parent passed away.

How to Shop for the Best Term Life Insurance Rates

These methods can help you secure the best term life insurance rates:

• Compare quotes: Shop around to compare similar coverage amounts, policy features, and terms. Consider each insurer’s financial strength and reputation.

• Maintain a healthy lifestyle: Your health impacts your premium rates. Stop smoking, using tobacco-based products, or vaping; maintain a healthy weight, exercise daily, manage any chronic health conditions, and limit alcohol consumption.

• Consider policy riders: You can enhance your coverage with riders such as waiver of premium, which waives the premiums if you become disabled; accidental death, which provides additional payout for an accidental death; a child rider, which extends coverage to your children; or terminal illness, which allows early payout if you are diagnosed with a terminal illness.

How to Secure Term Life Insurance  

These guidelines demonstrate how to secure a term life insurance policy:

1. Select a coverage amount: Consider the income required to replace your current financial support. Include outstanding debt, such as a mortgage and car payments, and anticipated expenses, such as college tuition. Compare these debts against your existing savings and assets.

2. Choose the term length: Match the term life insurance policy duration to your financial obligations and goals. For instance, you might want coverage until your youngest child finishes college or until you retire.

3. Name your beneficiary: Determine who receives the death benefit if you pass away prematurely. Consider multiple beneficiaries or contingent beneficiaries as backups. Regularly review your beneficiaries and update as needed. Life changes such as marriage, divorce, and having children can impact who you want to receive the death benefit.

4. Apply: Shop around for the term life insurance policy that best fits your needs and budget. Next, complete a questionnaire about your health, lifestyle, and family medical history. Prepare for potential blood tests and vital sign measurements. Then, the insurer assesses your risk based on your application and test results. After that, the insurer decides whether to approve your application and sets your premium.

5. Receive your policy: If approved, you receive your term life insurance policy documents. Review the information before making the first premium payment and activating the policy. Store the policy so it can be accessed if needed.

*This information is for educational purposes only.