Understanding Your Life Insurance Options – the Value of Term Life Insurance

If you are looking for affordable life insurance, you might want to consider buying term insurance. Term life insurance provides a straight benefit, without the kind of investment component and cash back options that whole life and universal life often provide. The simple nature of term insurance means that it is often the least costly option.

How Much Life Insurance Do You Really Need?
Everyone?s insurance needs are different, so it is important to assess how much term life insurance you need to meet the needs of your family. If you have a mortgage, for instance, you might want to purchase enough term life coverage to pay that mortgage off in the event of your death.

Some people will want to purchase insurance that would allow a spouse to stay home with the children and not have to work if they died. If you want to generate enough to replace your annual income, you would need a policy equal to 25 times what you make, since that would allow your family members to withdraw four percent each year, thus lowering the risk of running out of money.

Do You Need Life Insurance At All?
Before you start shopping for a term life policy, you should first think about the people in your life who are financially dependent on you. If you are not married and have no children, you might not need life insurance at all. But if you have a family to protect, you should strongly consider purchasing life insurance.

Will I Need a Health Exam?
Some insurance companies will require you to have a health examination before the policy can be written. It is important to ask about this requirement when working with an agent. Not all term life insurance policies require a health exam, but many do, especially for older individuals shopping for insurance for the first time.

Choosing the Right Term
As its name implies, term life insurance provides coverage for a specific period of time. You can purchase term life insurance for as little as one year or as long as 20 years. It is a good idea to think about how long you will need this protection to remain in place. If you have young children, you can protect them by purchasing a longer term policy. But as those children get older and go out on their own, they might no longer need the financial security that term life policy provides.

The Importance of an Annual Insurance Checkup
It is important to remember that your term life insurance needs, and your need for life insurance, change throughout your life. When you are just getting started and have a family to protect, you might need hundreds of thousands of dollars in term life coverage to pay the mortgage and provide your family with a reasonable standard of living in your absence.

But as your kids get older and become self-sufficient, you might not need as much coverage. It is a good idea to schedule an annual insurance review with your insurance agent or financial planner. Go over your level of coverage and make any adjustments necessary to make sure you are covered.

Renewable Term Coverage
If you need insurance for the long term, you can choose a renewable term policy. A renewable term life policy allows you to renew your coverage at the expiration of the term, letting you continue this important protection uninterrupted. When shopping for a renewable term policy it is a good idea to look for one with a level premium, since this gives you added visibility for your costs.

Diminishing Term Life Insurance
If the main goal of your term life insurance is to pay off your mortgage if you die, a diminishing term policy is probably the best choice. With a diminishing term policy the value of the death benefit declines over time, and if you structure it properly this decline can coincide with the decline in the amount of your outstanding mortgage. Since the value of the policy goes down over time, a diminishing term policy is often more affordable than other types of insurance coverage.
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Term vs. Whole Life Insurance
When you shop for life insurance, you have a choice between term life and whole life, and it is important to know the distinction. With a term life policy you are paying strictly for a death benefit, and as a result the costs tend to be much lower. There is no cash value to the policy, and you cannot cash it in and get your premiums back. If you choose a whole life policy, you do have a cash value, and often the option to cash the policy in and take the proceeds. You will pay more for this type of coverage, however, so it is important to weigh the benefits and the costs of each type of policy.

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