Term Life Insurance

As the name suggest the term life insurance is for a term that can be 10,15,20, 25 or 30 years. You pay the premiums for the terms of the insurance and the benefit, which is normally the death benefit, ends at the end of the term.

 

Term life is useful when you need the insurance for only a certain number of years. For example if you are in your early 40s, your kids at this time are very young and there is normally a home mortgage to be paid. Just in case, if you are there no more, you know the insurance benefits can provide the necessary financial help to pay off your mortgage and provide funds for the education of your kids from school through the college. This basically brings us to the point – how much term life insurance one needs?

 

Before you decide to buy a term life insurance policy, you would need to know the number of years you need the coverage for. For example, if your kids are very young and if you are the only bread earner in the family, you should plan for a term life insurance that at least covers the time till your kids finish their college. Therefore a 20 year term life insurance in the above example may fit the need. If you are in your fifties, you may not need the insurance beyond a 10 year period by when your kids would be grown up and self sufficient.

 

Calculating the amount of insurance is a little tricky. You need to estimate the total expense that you would prefer getting paid off if the need for the insurance use arises. You might want to consider the following payments:

  1. Mortgage pay off amount

  2. College education

  3. School education

  4. Monthly family expenses for a certain number of years.


If you total the amount needed for the above examples, you can get an estimate of the insurance amount you need.

 

When should you buy the term life insurance? First, when you have survivors who are totally or partially dependent on you. As long as you are single and have no one else to leave the insurance benefits to, it does not make sense to buy term life insurance anyway. When you have a family, you should buy term life insurance for the longest period you can, because when you are young you can get the best rates that get locked for the entire duration of the term. If you buy an insurance policy for 10 years at the age of 40, you might need to renew it again when you are 50. At the age of 50, the insurance policy would be much more costlier. In this case, it makes more sense to buy a 20 insurance policy when you are 40.

 

Benefits of Term Life Insurance

 

  • Term life insurance is a very affordable way to buy life insurance. You can buy a $1m policy for less than $60 dollars a month, depending upon your age, sex, health and if you are a smoker or not.

  • You can buy term life insurance for very short periods, like a year, if needed.

 

Disadvantages of Term Life Insurance

  • Term life insurance does not have any cash value at the end of the term.

  • It becomes more and more costly and difficult to renew term life insurance as you grow up. Therefore, if you think you need the insurance cover for a longer time, you need to plan it in advance and buy the appropriate term life insurance right at the beginning.


Taxes

 

The death benefits from a term life insurance are not taxable. Therefore, when you buy the term life insurance you do not have to buy any additional amount to pay off the income tax, beyond what you really need.

 

Term Life Insurance for Kids

 

Do you need to buy term life insurance for kids? The common answer is no. Term life insurance is normally used to replace the income that the insured person is getting or would be getting if alive. Kids are the recipients after a parent is no more, as they need the support. If something happens to the kid, it does not bring any financial hardships to the family unless the kid is a person adding to the family's income. However, there can be many other scenarios where you might want to buy a kids term life insurance also. It depends and is a personal preference.