How would your life change financially if you or your spouse were to die unexpectedly?
Do you have a mortgage, other loans, or debts which you or your spouse would not be able to afford should either of you die?
Maybe you have children living at home still, and your current lifestyle would change quite a bit with the loss of not only your spouse, but the loss of his or her income as well?
If any of these scenarios are ones you can relate to, Term Life Insurance may be a fit for your life insurance needs. Let’s talk more about it and answer the question “What is Term Life Insurance?” and when it would be an appropriate type of coverage for you and your family.
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Back when I first started in the insurance business some twenty years ago, the only thing we offered was Term Life Insurance. Now, some people advise families to only get Term Life Insurance while other’s recommend permanent types of coverages alone. For me, I have found that both term and permanent coverages are necessary for different reasons and circumstances based on each individual need.
When term insurance was all I had to offer, I thought it was great because the plan we had, and still have today, was one where if you died, a check was written for the amount of the policy, but if you didn’t die, a check was also written for the amount of premiums paid over the designated time of the policy. To me, it was a win win… How could you lose?
When is Term Life Insurance best?
Why would I recommend term life insurance, you ask? There are a few reasons:
Mortgage Protection
Do you have a mortgage on your home? This is one of the main reasons I recommend a Term Life Insurance policy. A mortgage is taken out for a set period of time, and so is a term policy. The goal in this case is to cover the amount of your mortgage for the period of time you would owe on your home. In the event of your or your spouse’s death during that time, the term life insurance policy would cover the balance owed to the bank. This allows your family to pay off the mortgage and remain in the home. At the end of the day, it offers peace of mind that your family will have a place to live with out having to worry if they can afford the mortgage payment.
Note that this is not to be confused with PMI (Private Mortgage Insurance). PMI covers the bank or lender in the event you can not make the payments. Term Life Insurance will cover your family, and allow them to decide how they will move forward with the check.
Income Replacement
Do you have children currently living in your home? Maybe you have other debts like student or car loans or credit cards? This is another time when term life insurance can be beneficial to you and your family. You and your spouse have worked hard to build a life together… A life you both love and enjoy. Why not make sure your family can keep on living the life you built for them even after you or your spouse die?
In this case, term life insurance can be the peace of mind you both need to continue to provide your spouse and children with the life they have always known. It can pay off any loans or debts you have, or can serve as an income replacement source for the remaining family members. For example, we all know that having children adds to our household expenses. Our children’s needs are important to us, and we want to give them what we can. Having a policy in place that can continue to pay for baseball or gymnastics lessons, clothes and shoes, or their education will take the added financial weight off of your family after you die. While the loss of a parent or spouse can not be changed, the lifestyle we leave our family with doesn’t have to.
Why is Term Life Insurance best in this case?
So, why is term a good choice when you have a mortgage, loans and other debts, or while you have children living in your home? Essentially, term insurance is just that… a set amount of coverage that lasts for a set period of time. Because this type of policy is taken out for 10, 20 or 30 years, it tends to cost less than permanent types of insurance. The nice thing about it is that you get to choose how long you wish to have the policy, and can take affordability into account. The longer the term, the more your payment every month will be. At the end of the day, if you can’t afford your policy… it won’t be there for you when you need it most.
But what happens after your term is up? Most companies will allow you to convert your term policy to a permanent one, if you choose to do so, without needing to complete a health exam. This is a big deal because, as you can imagine, your health may change over the course of 10 to 30 years. Around here we like to say, “Money doesn’t buy life insurance, your health does.” That is because the more health ailments you have, the bigger the risk you are for the insurance company to cover you. So having the ability to keep your term policy and make it permanent coverage without needing a new health exam, means they can’t turn you down for converting the coverage.
Have a term policy you want to know more about converting to permanent coverage?
Why would anyone advise against Term Insurance?
All of this sounds great, so why would anyone advise against term insurance?
I am glad you asked. There are a few things to be aware of when it comes to term insurance. Let’s go through them together.
Level or Decreasing
What happens if you have a decreasing term policy and you choose to refinance or use the equity in your home for any reason? This situation could leave you with a gap in coverage.
A decreasing term policy is one where the amount of coverage lessens as the length of the term goes on. Let’s say you have a $100,000 mortgage and have paid it down over the course of 10 years to a $70,000 balance. You decide to refinance or take out a home equity loan to either lower your interest rates or make necessary repairs to your home. Like your mortgage balance over those same 10 years, the pay out check for your term policy too has decreased, and now you owe more than what your insurance policy covers. This gap in coverage now becomes your family’s responsibility when you die. At this point, you need to either get another policy to cover the difference, or take the risk and hope you don’t die before its paid off. Remember too, that taking out a new policy 10 years after the first will require you to qualify with your health again.
On the other hand, a level term policy will remain at the same pay out in the event of your death for the full length of the term. This offers more wiggle room without having to add a separate policy years down the road.
Do you have a term life insurance policy and are unsure which type you have? Reach out to us today for a free review.
Renewable Term
Have you ever heard the saying, “You get what you pay for?” Like decreasing term policies, renewable term insurance tends to cost a little less per month, but there is a reason for it.
This type of term policy renews at a set interval of time, most commonly every year. When it does renew, so does the monthly cost for keeping the coverage. This means your premium, the amount you pay to have the policy, increases each time while the amount of the check the company would write to your family when you die remains the same. Why, because every year we grow older. The older we get, the closer we get to dying, and therefore the higher the risk we are to the insurance company.
On the other hand, a level premium term policy will keep the rate you are paying the same year after year. Essentially, it locks your payment amount in for the full duration of the term at the age and health you were when you first were approved.
How often should I have my policies reviewed?
When was the last time someone sat with you to look over your policies with you? It is important to do this on a regular basis. Why?
Life Happens
The first reason to have your policies reviewed every year is because life happens and things change. You want to make sure your overall picture keeps up with the choices and changes you are making each year.
Have an Accurate Understanding
Do you have life insurance, but you are unaware of exactly what type of policy it is or what is covered? Many times when I have sat down with a family to discuss their needs, I have found they don’t have what they think they have. For example, the family may think they have a 30 year term and in reality it is only a 10 year term. Having your policies reviewed each year will give you the chance to get answers to the questions you may have from someone who reads policies every day and understands the lingo. Let’s face it, sometimes reading our policies is like trying to read the directions to a new appliance in another language. We read through it all and at the end we are more confused than we were before. Don’t worry, we are here to help you understand exactly what you have and answer those questions for you.
Relationship
Have you built a relationship with your agent over the years? I hope so, but more often than not I find this is not the case. Having your policy reviewed each year gives you the opportunity to get to know the person you are trusting with your family’s financial future. This is the person your spouse, parent or child will need to call when you die. This is the person who will help your family file the claim to the insurance company and will deliver the check to them while they are busy grieving and planning your final arrangements.
As you can see, there are many reasons why Term Life Insurance may be an option for you and your family’s needs. At the same time, there are some considerations to be aware of. We are here to answer your questions, and help you plan for your family’s future. Reach out today to schedule your free review or discuss your options.
Call 904-568-5048 or Email marklwomack@gmail.com