Term Life Insurance: Your Top 26 Questions Answered

Understanding Term Life Insurance: Your Questions Answered 2024

Below are the 26 most common term life insurance questions and answers most people have when shopping for a new policy.

1. What exactly is term life insurance?

• Answer: Term life insurance provides protection for a specific period, usually ranging from 10 to 30 years. If you die during the term, your beneficiaries receive the death benefit. It’s generally the most affordable type of life insurance.

2. Why would I choose term life insurance over other options?

• Answer: Here’s why term life insurance might be a good fit:
  • Budget-friendly: Premiums are significantly lower than permanent life insurance.
  • Temporary needs: Ideal if you need coverage while paying off a mortgage, replace income that would be lost with a premature death, protect children until they are out of college, or while your business is growing.
  • Simple and straightforward: It’s easy to understand and select the right coverage.

3. How long a term should I choose?

• Answer: Consider these factors:
  • Length of financial obligations: Align your term with the time needed to pay off debts, protect your income until retirement or raise children to financial independence.
  • Age and health: Life insurance premiums increase every year as we age. Also, the chance of developing a medical condition or needing medication increases as we get older which will raise premiums or even affect eligibility.

4. What happens when my term life insurance policy ends?

• Answer: Here are possible scenarios:
  • Coverage stops: If you don’t take action, you’ll no longer be insured.
  • Conversion: Some policies offer the ability to convert to permanent insurance without a new medical exam.
  • Renewal: You may be able to renew for another term, but usually at higher premiums.

5. How do I determine how much term life insurance coverage I need?

• Answer: Think about these aspects:
  • Debt: Cover outstanding mortgages, loans, or credit card balances.
  • Income replacement: Calculate how much your family needs to maintain their lifestyle. A general rule of thumb is 10x annual income.
  • Children’s expenses: Factor in current and future education costs or childcare until they’re independent.
  • Final expenses: Include funeral, medical, and legal expenses.

6. Can I get term life insurance if I have health problems?

• Answer: It depends on the severity of your health conditions. Some insurers specialize in offering coverage to individuals with pre-existing conditions. Be honest about your health history during the application process to avoid issues later on.

7. Can I get term life insurance if I have health problems?

• Answer: While having health problems can complicate getting life insurance, it doesn’t mean you’re automatically disqualified. Here are some things to keep in mind:
  • Severity of condition: Life insurers assess risks based on the type and severity of your health issues. Well-managed, less severe conditions are more likely to be approved.
  • Specialized insurers: Some insurance companies focus on providing coverage to individuals with specific health conditions or who may be considered higher risk.
  • “No exam” policies: These policies offer a simplified application process without medical exams, but the majority of companies will require and exam with major health problems.
  • Be prepared: You’ll likely face higher premiums. It’s crucial to work with an experienced insurance broker who can shop the market and find the best possible policy based on your unique health situation.

8. What’s the difference between a beneficiary and a contingent beneficiary?

• Answer: Understanding these roles is essential for ensuring your insurance proceeds go to the intended individuals:
  • Primary Beneficiary: This is your first choice to receive the death benefit. You can name multiple primary beneficiaries and specify percentages (e.g., your spouse gets 70%, children split the remaining 30%).
  • Contingent Beneficiary: This person or entity acts as a backup. They only receive the death benefit if none of your primary beneficiaries are alive at the time of your passing, or if the primary beneficiaries cannot be located or reject the money.
  • Example: You name your spouse as your primary beneficiary and your children as contingent beneficiaries. If your spouse predeceases you, your children would receive the death benefit.
  • Changing the Beneficiary: You can change beneficiaries at anytime.

9. Do premiums increase as I get older?

• Answer: With most term life insurance policies, your premiums are locked in for the duration of the term. This is called level term life insurance. If you renew the policy after the term ends, expect the premiums to rise significantly due to your increased age.

10. Can I cancel my term life insurance policy if I no longer need it?

• Answer: Yes, you can typically cancel a term policy at any time without a penalty. However, you won’t receive any refunds on paid premiums, and you’ll lose your coverage.

11. What if I think I need more coverage later in life?

• Answer: A few options exist:
  • Ladder up: Purchase an additional separate policy based on your current age and health.
  • Conversion: If your policy offers it, convert your term policy to a permanent one, usually without new health checks if you need to extent the coverage.

12. I’m young and healthy. Do I really need term life insurance?

• Answer: While the risk of needing life insurance might feel low when you’re young, here’s why it’s smart to consider:
  • Lock in affordable rates: Premiums are significantly lower for younger, healthy individuals. You can secure extensive coverage at an inexpensive price.
  • Protection against the unexpected: Accidents and illnesses can happen at any age. Having coverage early protects your future family or dependents.
  • Build a financial foundation: Life insurance can be a key part of responsible financial planning as you take on responsibilities like buying a home or starting a family.

13. Isn’t term life insurance a waste of money if I outlive the term?

• Answer: While it may feel that way if you don’t pass away during the policy’s term, think of term life insurance in these ways:
  • Peace of mind: It’s about knowing you were protected for a significant portion of your life when the risk was potentially higher.
  • Temporary needs: Term life is ideal for protecting against risks during specific periods, such as raising young children or paying off a large debt.
  • Flexibility: If your circumstances change and you need ongoing security, options like converting to permanent insurance or buying a new policy can offer a lifeline.

14. What factors affect the cost of my term life insurance premiums?

• Answer: Several factors influence your premiums:
  • Age: The younger you are, the lower your premiums are likely to be.
  • Health: Having a healthy lifestyle and no significant medical conditions can lead to more favorable rates.
  • Smoking status: Smokers usually pay substantially higher premiums.
  • Coverage amount: Naturally, the higher the death benefit, the higher your premiums.
  • Term length: Longer terms will generally have higher premiums.

15. Are there riders I can add to my term life insurance policy?

• Answer: Yes, many insurers offer additional riders that can customize your coverage based on your specific needs. Common riders include:
  • Waiver of premium: If you become disabled, this rider may waive your premium payments, keeping your policy in force. There is a charge for this rider and typically increases the premium significantly.
  • Accelerated death benefit: Allows you to access a portion of the death benefit if you are diagnosed with a terminal illness. This rider is typically included with the policy at no cost.
  • Accidental death: Pays an additional benefit if your death results from an accident. This rider often increases premiums.
  • Conversion option: Allows you to change your term policy to a permanent without evidence of insurability. Many top companies include this rider automatically with the policy at no cost.

16. What if I can’t afford the premiums anymore?

• Answer: You have options if life circumstances change:
  • Reduce coverage: You may be able to decrease your death benefit for lower premiums.
  • Cancel the policy or stop paying: This will forfeit your coverage and should only be used as a last resort.
  • Talk to your insurer: They may have strategies to help you maintain coverage in difficult times. Don’t just let your policy lapse without exploring solutions.

17. How do I find the best term life insurance company?

• Answer: Follow these steps to make an informed decision:
  • Work with an independent agent/broker: They can compare quotes from multiple insurers. Rates can vary significantly from company to company for the same policy based on age, height and weight, family and health history.
  • Consider financial ratings: Choose companies with high financial strength ratings (A.M. Best, Standard and Poor’s).
  • Customer service: Look for companies with excellent reputations in customer support and claims processing.
  • Policy features: Compare riders and any unique benefits offered by different insurers.

18. Can I name a trust as my beneficiary?

• Answer: Yes, you can. Naming a trust as your beneficiary offers several advantages:
  • Control over asset distribution: A trust allows you to set specific conditions for how and when your life insurance proceeds are distributed.
  • Protecting minor beneficiaries: A trust can ensure the money is managed responsibly if your children are young.
  • Avoiding probate: Trusts can help bypass the probate process, speeding up the distribution of funds.
  • Tax considerations: Seek legal and financial advice, as there may be tax implications with naming a trust as a beneficiary.

19. What happens if I miss a premium payment?

• Answer: Most term life policies have a grace period (usually around 30 days) after the due date. If you pay within the grace period, your coverage remains in force. However, if you miss the grace period, your policy could lapse, meaning you would lose your insurance protection. To reinstate a policy after the grace period expires entails submitting a form which will ask if your health has changed. Also you will be responsible for paying the missed premiums to bring the policy up to date.

20. What’s the difference between term life insurance and mortgage insurance?

• Answer: These types of insurance serve very different purposes:
  • Term life insurance: Benefits go to your chosen beneficiaries and can be used for any purpose, including paying off a mortgage but also other debts, income replacement, etc.
  • Mortgage insurance: Benefits typically go directly to the lender to pay off your remaining mortgage balance. It doesn’t offer flexibility on how the funds are used. Also, the death benefit decreases as the mortgage balance goes down, however your payment stays the same for less coverage.
  • Today: the majority of people will choose term life insurance since the coverage amount and premiums are fixed as the mortgage is paid down which allows the beneficiary to use the extra funds to replace income, cover final expenses etc. Also, the rates are often the same or less expensive than mortgage life insurance.

21. Can I get term life insurance through my employer?

• Answer: Yes, many employers offer group term life insurance as part of their benefits package. However, keep in mind:
  • Limited coverage: The amount of coverage may be insufficient for your needs.
  • Portability: If you leave your job, you often lose the group coverage or it is very expensive to take it with you.
  • Consider supplementing: An individual term life policy can provide additional coverage that isn’t dependent on your employment.

22. Can I apply for term life insurance online?

• Answer: Yes, some insurance fintech companies offer online applications. The process can be convenient, but consider these things:
  • Cost: Applying for instant policies available online without speaking to an agent are often much more expensive.
  • Complexity: Applying for larger coverage amounts or with health complications will be easier with the help of an agent.
  • Comparing quotes: Use online quote comparison tools but also work with an independent agent to ensure you’re getting the best deal.
  • Digital Application: After speaking with the agent and finding the best company, typically an email or text will be sent to you to complete the online application.

23. Do I need a medical exam to get term life insurance?

• Answer: It depends. Some insurers offer “no medical exam” term policies, relying on your health questionnaire and other data. However, these policies often have these limitations:
  • Lower coverage limits: The maximum death benefit amount may be smaller. Some companies will go up to $3 million.
  • Higher premiums: Rates may be higher to account for the insurer’s increased risk with some companies. Today many top insurers offer their no medical exam application at the same rates with the exam.
  • Traditional policies: If you want larger coverage or have health concerns, you’ll likely need a medical exam for the most comprehensive options.

24. Is there an age limit for getting term life insurance?

• Answer: While most insurers have a maximum age limit (often around 75-80), some companies specialize in life insurance for seniors. Keep in mind:
  • Cost increases: Premiums become significantly more expensive as you age.
  • Shorter terms: Expect shorter term lengths (e.g., 10-15-20 years) for older applicants.
  • Other options: Consider guaranteed issue whole life policies if traditional term insurance becomes challenging to obtain.

25. What if I’m not happy with my term policy after I buy it?

• Answer: Most policies have a “free-look period” (usually 10-30 days) where you can review the policy and cancel for a full refund if it doesn’t meet your expectations. Take advantage of this period to review your coverage carefully.

26. Are term life insurance premiums tax-deductible?

• Answer: Generally, no. Term life insurance premiums are usually not tax-deductible for individuals. However, there may be exceptions in certain business-related situations. It’s best to consult a tax advisor for clarification.

Wrap Up

Term life insurance is a product most people will only purchase once or twice in their lifetime. Naturally, there will be questions about the process and the policy itself. God forbid you were to pass away you won’t be here to make sure everything is handled correctly which further illustrates the need to know everything about your policy. Also, working with an experienced life insurance broker is essential as they can shop the market to find the best rate and answer any questions you may have.

If you have any questions that were not addressed here, feel free to call, email or contact us here and we’re happy to help.