What Is Term Life Insurance?

Term Life Insurance

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Life insurance is not especially exciting to think about, but it’s incredibly important nonetheless. Neglecting to sufficiently plan for a time when you’re gone can have a major impact on your loved ones. One common question we hear from our customers is about the difference between term life insurance and whole life insurance. To help clarify the important distinctions between these policies, we will explain what term life insurance is and how it works.

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So What is Term Life Insurance?

Fortunately, term life insurance is a simple concept to grasp. The “term” is the timespan that starts when your coverage takes effect. Should you pass away during that term, your chosen beneficiaries will receive the predetermined payout from the insurance company. Typical term lengths are ten, twenty, or thirty years. Level premium term policies lock you in at a fixed premium for the full term. Annual renewable term policies, unsurprisingly, require you to renew each year, with lower costs early on that rise as you get older.

How Is It Different?

There are several factors that differentiate term life insurance from whole life policies, which last until the policyholder dies or stops paying premiums. First, term life insurance is very affordable, typically a fraction of the cost of a whole life policy. This is because far fewer people die within their term policy, allowing insurers to offer low premiums. Whole life policies, on the other hand, always pay out (barring an immortal policyholder).

Second, it is often renewable. This means that, following the completion of the established term, you are able to renew the policy, though new premiums will be based on your current age. Some term policies offer an additional perk: convertibility. In these situations, policyholders can transfer over to a new policy without having to undergo a medical exam or answer health-related questions. Given that this might be decades after the initial examination, this can result in major savings, even after factoring in the higher cost of such a policy.

Typical Costs and Benefits

As with most types of insurance, rates and benefits can vary widely depending on a host of factors. To give you a basic idea of cost, the average monthly premium of a 20-year term life insurance policy with a $250,000 payout for a healthy, 35-year-old non-smoker is only $29.98. Though this is quite a bit cheaper than whole life insurance, term life insurance policies lack the perk of accruing value over time, which allows policyholders to borrow against them or even cash them out.

Is Term Life Insurance Right for Me?

Often, the people who opt for term life insurance policies want their families to be able to cover the mortgage and other debts in the event of their premature death, but know that the coverage won’t be necessary by the time the chosen term ends. Term life insurance is also great if you want life insurance but don’t want to pay an arm and a leg.

Though everyone’s situation is unique, we typically recommend term life insurance for clients who have debts or dependents that will require financial help if they prematurely pass away. You don’t want to end up in a situation where your loved ones have to face both the grief of your passing and the financial obstacles that accompany the death of the breadwinner.

Interested in getting started on a term life insurance policy today? Illinois Insurance Center has helped secure the futures of families for decades. Give us a call at 708-928-8483 to discuss a policy and receive a quote today!