Term Life Insurance is One of My Go To Products
So what is term life insurance?
It’s the most basic form of coverage on the market. But do you know how it works and why we recommend that our clients buy it most of the time?
There are a lot of articles about life insurance, unfortunately, many of them don’t start with the basics.
This is why I decided to write this blog. It’s important for people to be able to easily access information about one of the biggest purchases they make in their lives.
So why not start with the foundation of life insurance?
What is Term Life Insurance EXACTLY?
My Name Is James Heidebrecht, Founder of Policy Architects and I LOVE Term Life Insurance
Term life insurance is one of my favourite products! Hey don’t get me wrong, permanent insurance works a charm for people in the right circumstances.
BUT if you look at the needs of MOST people MOST of the time term life insurance fits the bill.
Because when you are relatively young and healthy it’s super affordable.
Sure permanent life insurance offers coverage until the day you die and gives your beneficiaries a guaranteed payout, but that does come at a price!
Unless you are considering final expense insurance, permanent coverage should only be considered by more affluent people who can afford the higher premiums.
So let’s take a deeper dive into term life insurance right now to see what it has to offer.
The ABCs of Term Life Insurance
No one needs to tell you why you should have life insurance: If you die and your family or anyone who depends on you for support could no longer count on your income, life insurance would replace that income—assuming you choose a policy with the amount of coverage that is right for you.
Term Life Insurance Provides TEMPORARY Protection
One of the most important things to understand about Term Life Insurance is that it’s TEMPORARY protection for periods when you feel most vulnerable.
For most people considering purchasing life insurance they are looking for income replacement just in case they pass away early.
I think most clients are surprised to find out how much money it costs to keep your loved ones in the lifestyle they’ve become accustomed to. What if your income suddenly evaporates never to return.
The average Canadian salary (2019) is approximately $52,000. If you’re an average Canadian with a working life of 40 years, you’ll earn in excess of $2 million over your lifetime. What happens if you die unexpectedly and all that potential income dies with you?
Well, financial devastation ensues for most of us, which would mean a disaster for those we leave behind.
This is where term life insurance comes in.
Term Life Insurance Is Affordable
Purchasing term life insurance is kinda like renting a home instead of buying one. Because your need is temporary, the cost is much more affordable than buying something permanent.
Term works a charm for families looking for income replacement because they can afford more coverage.
The amount of money you choose as a face value (amount of coverage) is a tricky thing. While $100,000 sounds like a lot of cash it’s not a lot when you factor it out over time.
In fact, we recommend 10x’ing your income (take your gross income and times it by 10 to get the figure you need for adequate protection). For example, if you make $50K per year you need at least $500K of coverage to live comfortably. If you happen to have very young children you may want to 15x it to be on the safe side.
$500K of permanent insurance is FAR more costly than $500K of term. So if you opt for permanent insurance on a tight budget, you will be underinsured.
The Most Affordable Term Coverage Requires a Medical Exam
You can get term coverage without a medical exam but if you want to save money you shouldn’t avoid it.
The more information you provide a life insurance company, the more affordable your rates are. This is because life insurance is all about risk assessment.
If you get coverage without a medical exam they put you in a pool of high-risk applicants. Which means your premiums are substantially higher.
Don’t get me wrong there is a time and place for simplified issue policies but for most people, most of the time traditionally underwritten term life insurance is the way to go!
Life insurance medical exams are simple and easy. The nurse comes to your home and takes your weight and height. She asks you a few questions, takes urine and blood samples and voila! It’s over.
Want some good news? Most people are healthier than they think. Although there’s a lot of anxiety that accompanies these exams the majority of my clients are rated standard or better.
Selecting the RIGHT Term Is Important
A term is the period of time you need coverage for. This is a very important part of the decision-making process when buying life insurance.
This protects them through their most vulnerable years and it’s super affordable. The truth is, none of us know what the future holds and it’s far more expensive to get coverage when you’re in your 50’s and 60’s.
BUT that being said long terms aren’t always the perfect solution. Maybe you just need to cover a debt that will be paid off in 10 or 15 years. In that case, 30-year term is overkill.
There are also families that pay down debt and don’t want more life insurance than they need. Clients like this can layer different term lengths – so excessive coverage drops off as their debts decrease. This can save you a pretty penny.
Call a good independent life insurance agent to go through all these details to make sure you select the right term! It will save you time, money and hassle.
Most Term Life Insurance Has a Conversion Option
What is a conversion option? It’s the ability to switch your coverage to a permanent policy when your term ends without a medical exam.
Why is this important? Because if you need coverage later in life medical issues may make it excessively expensive – or maybe you’ll even be denied. This is a great option to have if you need it. No one wants to be left without choices.
Term Life Insurance Definitions
Insurance agents assumer a lot of knowledge and you know what they say about that?
I think it’s because we are submerged in this stuff day in and day out and we forget that other people aren’t. This is why I am going to share some definitions for the terms I used throughout this article.
Life Insurance Term
Your term is the period of time you select that feel will adequately cover your family if you die.
Typical terms are 10, 20 and 30 years, although there are variations.
The amount of money you need to protect your family if they lose your paycheck.
Typical face values are $250K, $500K, $1Million, although there are variations available.
The person who is being covered by life insurance. If the policyholder dies during the term the face value is released to the Beneficiary.
The person who received the proceeds of a life insurance policy. If the policyholder dies during the term the face value is released to the Beneficiary.
You can have multiple beneficiaries or even make a charity a beneficiary.
Selecting the right person or organization for this role is important. Remember there are limitations. For example, if you pick a minor to receive the funds, they can’t gain access until they turn 18.
Also, keep track of changes. It’s not unheard of for a divorced couple to leave their ex on a policy as the beneficiary – which is not in line with their change of circumstances.
This the amount of money you pay monthly, annually or in a lump sum for your coverage.
Your premiums are based on the rating you receive from underwriters.
When you take a medical exam the results of the blood work, urinalysis, height, weight, and application answers are sent to an underwriter.
These professionals review the data and make a decision about how much of a risk the company is taking to cover you.
You are placed in a category, which determines how much the insurer charges you for your premiums.
Here are the following ratings:
- Preferred Plus
You can also be rated, which means you fall outside of traditional coverage and you pay more. If the company needs more information they may defer their decision…
…or if they aren’t confident about your health you may be declined.
Life insurance underwriters are the people that review your application and medical results to determine what rating you receive OR if the company should cover you at all.
Underwriters specialize in risk assessment and apply the processes specific to their particular life insurance company.
Remember some insurers are more lenient than others for specific medical issues. All companies have niches so underwriters know the ins and outs of their particular employer.
Now That You Know What Term Life Insurance Is Call Policy Architects NOW
Term Life Insurance is the bread and butter of the life insurance industry. This is because it works for MOST people MOST of the time.
This type of coverage is inexpensive, flexible AND suits the needs of people looking for income replacement in case there is an unexpected death.
It does NOT, however, guarantee your beneficiaries a payout. So if you are looking to leaved loved ones a nest egg, want to provide funds for final expenses or need to create a trust this isn’t the route for you.
If you do decide term life insurance fits your needs, please be sure to consult an independent life insurance agent because not all companies are created equal.
You want to select the best insurer for your personal needs. The savings could be in the thousands.