What is Term Life Insurance?

Written by Carl Snyder

“Term Life” is a buzzword that gets thrown around enough that it seems everyone but you knows what it is. But what is term life insurance?  Why does it always seem to cost so much less than all other lines of insurance?  According to Dave Ramsey, term life insurance is the only type of life insurance that anyone needs. Life Insurance agents will sometimes treat it as the consolation prize.  Before you determine how much it will cost you to protect your family, you’d better start by figuring out exactly what type of insurance you need.

What is it, and why does it cost less?

Term life insurance is a simple contract between the insured individual and the insurance company.  It guarantees a death benefit if the insured passes away during a specified period of time known as the term.  The insurance company pays a predetermined party known as the beneficiary.

Imagine you call your auto insurance company and claim that you want insurance on your car but only for the first 4 months of the year.  Do you think you should pay less since you don’t have it year round? Of course!! That’s what term life is. When your children are going to school they are completely dependent on you providing for them.  During that time you’ll want to insure yourself with a much bigger death benefit than when they’re in their 30’s and making more money than you are.

The Death Benefit and The Term

Term life is always defined by two different variables that the client chooses.  Both of these greatly shape the price of the insurance: the death benefit and the term.  The death benefit, also known as the face amount, is ordinarily the primary focus that novice insurance shoppers focus on.  It makes sense to see that $300,000 will be less expensive than $500,000 in coverage. The term on the other hand, tends to not make as much sense at first.  A 10 year term guarantees that over a 10 year period of time if anything happens to the insured a payout is owed to the beneficiary.  A 20 year term being twice as long pays the same amount of money upon death but doubles the risk.  For this reason longer terms are more expensive which is why it’s imperative that figuring out the right death benefit AND the right term will give you the most value and prevent you from over spending.

Finally, most all term life insurance policies are underwritten, which means they will need to verify your health with a variety of different means.  Better health will buy you lower monthly premiums.  There are an overwhelming number of insurance companies that offer this type of coverage so try not to do it alone.  Be sure to shop the rates with the help of an experienced broker who can explain all of the benefits.  

About the author
About the author

Carl Snyder is a licensed insurance agent that specializes in life insurance and medicare insurance options.  He is also a husband, a father, a fisherman of sticks, a runner, a world class donut eating champion, and a fan of all things practical.

This entry was posted in Life. Bookmark the permalink.

Leave A Reply