Term life insurance is the simplest form of life insurance available in the life insurance market. Term insurance allows you to protect you and your family in the event of your death within a specified time frame.
Your beneficiaries receive money when you die as long as they file a claim form to receive benefits. But, as simple as term life insurance is, you may still have some questions about how it works.
How Does Term Life Differ From Whole Life?:
Term life insurance and whole life insurance use the same factors to determine the cost of insurance. This means that the mortality tables, or the way the insurance company predicts your death, is the same for both types of policies. Term life insurance, however, does not build cash value inside the policy. Term life insurance is also priced according to a set term. For example, whole life always appears to be more expensive than term insurance because whole life is priced so that a cash reserve will equal the death benefit at your age 100. The whole life policy is also priced assuming you will live a maximum life span of 100 years. Term life insurance, on the other hand, uses your current age and your age at the end of the term to determine how much money is needed to provide benefits for the entire term of the contract (after other health factors have been taken into account).
How Much Term Life Insurance Do I Need?:
How much insurance you need depends largely on your personal liabilities. Term life insurance is meant to provide coverage for your financial liabilities. These liabilities could include your children, your mortgage, your car and other loans, and any medical bills you might have. Many individuals also want to provide enough money to give their spouse a second income after they die. A simple method to determine how much life insurance you need is to simply add up the total of all of your debts. The resulting number will indicate how much life insurance you need today to pay off all of your liabilities. You may or may not need more life insurance than the total amount of your liabilities. For example, if you take on additional debt, you will need additional life insurance to cover that debt. However, as your debt decreases, especially if it is decreasing faster than the rate of inflation, then you will not need more life insurance and may need less.
What Factors Affect My Premium?:
Your health, hobbies, lifestyle, sex and occupation all determine your premium rates. For example, women tend to live longer when all other risk factors remain the same so their premiums tend to be lower than male premiums at the same age. Poor health increases premiums as does a lifestyle that includes drugs and excessive alcohol consumption. A dangerous occupation, like skydiving, can increase premiums as well. If you are a coal miner, this will increase premiums.