Determining Which Term Life Insurance Policy Makes the Most Sense
Term life insurance is used primarily for pure income replacement (i.e., your human capital). When you apply for term life (non-permanent) insurance, you have to choose the amount of coverage you want ($50,000 to more than $2,000,000) and the term of the policy – usually a 10-, 15-, 20- or 30-year policy. The coverage amount and term depend on your specific needs, such as taking care of young children, or paying off the mortgage if you pass away unexpectedly.
Since term life insurance policy premiums stay level, i.e., the same, your premium does not change during the term. This causes the premium to be higher for longer terms. At the end of the term, you either lose life insurance coverage or apply to obtain a new policy with a different term, conditions and premium costs.
How the Premium Is Determined
Your premium is determined by your age, gender and health rating, multiplied by a stated factor for the term and coverage amount you’re applying for. The health rating component requires an insurance physical exam where a nurse visits you at home or at work, or you can go to a doctor’s office.
When deciding how much insurance to get, consider the costs of raising a child and potential college tuition, plus the mortgage, funeral costs and any other potential debt. For lower coverage amounts, such as under $250,000, many companies offer simplified issue insurance, which you usually receive advertisements for by mail from your mortgage lender or homeowner’s insurance company. This type of life insurance doesn’t require a medical exam and can be approved in just a couple of days. (more…)