Benefits of Term Life Insurance

Ultimately, choosing the right type of life insurance for you and your beneficiaries is a personal decision, so it requires careful consideration. Before buying a policy, it's important to know what features and benefits it offers to determine if it's an ideal fit for your needs.

In addition to offering a death benefit to your beneficiaries in the event of your passing, there are at least three other main benefits of term life insurance to consider.

1. It's Simple

Term life insurance is typically easy to understand and simple to set up. Like the name suggests, these policies cover a term, which is a certain period of time. If the policy owner passes away before the end of the term, the death benefit is paid to their beneficiaries. Once you choose the benefit amount and the term period, the application process can be relatively quick.

2. It's Designed to Be Affordable

Compared with permanent life policies, term life is typically affordable for most policy holders, especially those in good health.

The amount of term life insurance you may want to purchase primarily depends on your income. Generally, it's a good idea to buy enough life insurance so that the benefit amount will replace the income you now generate for your beneficiaries. Insurance should be purchased at a benefit amount of seven to 10 times income.

3. It Offers Some Flexibility

You can choose the benefit amount and the length of the term. At the end of the term, many insurers allow term policies to be renewed or to be converted into permanent life insurance. Increases in coverage are subject to new underwriting.

While there are many reasons to consider a term life insurance policy, one potential drawback is the fact that these plans have an expiration date. As opposed to whole life insurance, which provides coverage for your entire life as long as premiums are paid and pays a death benefit upon your passing, term life policies end when the predetermined amount of time is up.

How Much Term Life Insurance Do You Need?

Generally, life insurance is recommended if you have beneficiaries, such as a spouse or children, who would suffer financially in your absence. Term life insurance is typically suited for individuals who want coverage for their beneficiaries over a certain period of time.

For example, perhaps you need life insurance coverage while paying off large debts, such as college loans or a mortgage. In this case, you could buy a policy with a death benefit large enough — and a term long enough — to cover your specific need during that period.

There are three main types of term life insurance: guaranteed level term, decreasing term and renewable/convertible term:

• Level term means that the benefit amount stays the same for the entire duration of the policy. This could be one policy that some may purchase.
• Decreasing term means that the benefit amount declines, usually on an annual basis, over the duration of the term. This can help ensure you've got more financial coverage for a specific period of time, and less when you need less.
• Renewable & convertible term means the policy can be renewed yearly and no other underwriting may be needed as long as premium payments are current. This type of policy can typically be converted into a whole life insurance policy without requiring another medical exam (unless you wish to increase your coverage and that can be subject to new underwriting). This is an option some may enjoy.

Generally, of these three types, level term policies are more common. The length of the terms are typically 10, 15, 20 or 30 years.

If your plan is to generate income for your beneficiaries through an investment, you may need up to 20 times your income in life insurance. For example, if you needed to generate income of $50,000 per year, you might want to consider a $1 million policy. This amount would assume a reasonable expectation of 5% annual rate of return on investment.

There are multiple benefits of term life insurance. However, it can be helpful to consult with a financial representative prior to purchasing to ensure you're choosing the right plan for your needs.