When choosing to purchase a life insurance policy, you will (generally) choose between two options: term life vs. permanent life. Shoppers of life insurance may struggle when faced with this decision, but it really comes down to a few factors. Term life insurance is for those who only need coverage for a definite time, such as until you retire or when your dependents are able to support themselves.
Whole life, on the other hand, are for those who wish to have much longer-term financial planning goals, like trust funding or estate planning. Term life is generally inexpensive, whereas whole life may cost you a little more. This blog post is for life insurance shoppers who are choosing to purchase a term life insurance policy.
What is term life insurance?
Term life insurance is an insurance policy that can be defined as an agreement between the insurer and insured which declares that, in the event of the policyholder’s passing during the duration of the policy, the insurer will pay out what is known as a death benefit to those who are coined as “beneficiaries” in the terms of the policy. This is true for any term life insurance policy. The major difference between term life insurance policies exist in the duration of coverage and how much. As the policyholder, you must decide the amount of coverage you require and for how long.
Generally, the annual cost of term life insurance will stay the same every year throughout the entire duration of the policy. Once the “level term” period has passed, you can choose to renew your policy but there will be higher rates for each year that you choose to renew.
The policy ends or expires if you have outlived the duration of the policy and have not renewed. If you do pass away during this time, term life insurance may cover any specific debts you have that would otherwise be passed on to your heirs or loved ones, your loss of income to help support your children’s education until they have graduated, and even the years of a mortgage.
How much term life insurance do I need?
As with any insurance policy, the answer depends. The coverage you require should be enough to match any debts you have or obligations you wish to cover. You basically would want your coverage to be enough to pay your family’s ongoing expenses that would otherwise be covered by your salary in the event of your passing. You can work with a life insurance broker to figure out an approximate amount that your family would require to live as they are currently for the period of time you wish to insure.
There’s plenty of calculators online to help you determine the total amount of insurance you require. Alternatively, you can get a life insurance quote with Panda7 and compare prices among top carriers. See below to get started.
How much does life insurance cost?
Again, it depends. The cost of life insurance depends on the amount of coverage and the length of the term you select. It may also be influenced by several or all the following factors:
- Your age at the time you purchase your policy
- Your gender
- Your health history
- Your current and past health
- Your height and weight
- If you are a smoker
- If you have had a history of addiction
- Driving record
- Your hobbies – especially riskier hobbies
- Credit score
The likelier you are to pass away during the term of your policy, the more likely you are to see higher rates. For many policies, the largest factor is age. Insurance rates can increase exponentially within a decade, so it is advised that you purchase a term life policy as soon as you have dependents who would be left without an income or stuck with your debts in the event of your passing.
How long do I need life insurance?
As repetitive as it sounds, it depends. You choose the term life insurance length you wish, but you may always wish to work with a broker who can advise you personally based on your circumstances. You should consider how long a time you want to cover based on your ongoing debts, mortgage, and the years where your children may be going through university or college. If your children are older and will be finished school in eight or nine years, you may choose to pick a 10-year term life insurance policy. On the other hand, if you have just purchased a home and took on a mortgage, you may wish to choose a longer policy – anywhere between 15-30 years. Depending on the company, you may only have the option of choosing between 10, 20, and 30-term lengths, or you can have the option of selecting 5, 10, 15, 25, and upwards of 35 and 40.
If you believe that your family’s financial needs will persist past the term length options that are being presented to you, it may be worth considering a permanent life insurance policy. The most common length of policy is a 20-year term life policy, which accounts for around 42% of term life buyers.
Other options for life insurance
Life insurance may be broken down into three categories: term, whole, and universal life. When choosing between term and permanent, permanent life insurance buyers must also decide between universal life insurance and whole life insurance. Life insurance may be broken down even further, especially as some life insurance policies will cover certain obligations and others will not. For example, burial expenses may be covered by a permanent life insurance policy but may not for term life insurance as term life expires and permanent does not. If you have a special needs child who requires coverage lifelong, you may wish to opt for a permanent life insurance policy.
As always, you can discuss with a life insurance broker from Panda7 if you have any further questions regarding life insurance – term life or otherwise.