What Is The Difference – How Does Term Life Insurance Work
Buying any type of life insurance can be a time consuming and frustrating experience if you aren’t sure what you are looking for or if you have no idea how to find it. Term insurance is actually the easiest to understand and the cheapest to buy. If you’re in the market for insurance, you’re probably thinking, ‘How does term life insurance work?’
Up until the 1970s all you could buy was what was called cash value or whole life. These policies mixed savings and life insurance. Then term policies appeared and the concept made a lot of sense: you buy nothing more than a death, or burial, benefit. They were straightforward, they were cheap, and they served an important purpose. Policies were purchased for a length of time, the term, and if you died during that timeframe, the death benefit was paid.
Premiums are lower for young, healthy individuals. Occasionally you might be required to undergo some simple tests like blood work or a urinalysis. Some carriers insist on what they call a cheek swab as well; this checks for some diseases as well as for drugs and tobacco.
Once these results are in, your premiums are determined. It’s actually rare to have a company turn you down based on these results. Worst case, your premiums will be high. In certain situations you may find you have been ‘rated’. In these cases your premiums can be very high but you are still insurable. This rating also stays on your record to alert other carriers that you are considered to be in a high risk category.
Unfortunately, mistakes can be made and some people are rated who should never have been. If you are rated, you do have the right to have the information corrected. Your doctor can submit documentation showing that you do not have the disease or condition that has caused this rating. It could take a while to have the problem solved, but it’s in your best interests to indeed get it corrected.
A term policy can be purchased for an entire family, including children. This is a significant improvement over cash value insurance where each person needs to have a separate policy. A couple in their early 30s for instance, can easily get a policy for $250,000 for each, and a rider of $10,000 for the children (all the children combined, not each one!), for about $100 a month.
As insurance should be, you are paying only for a death benefit with term policies. You are not paying for any type of savings or investments, and there is no reason to anyway. If you die while the policy is active, your survivors get the face value of the policy.
Parents are sometimes hesitant to have their children covered, however, unexpected deaths happen all too often, and many families find themselves in financial despair when they can’t even pay for their child’s funeral. This is exactly what the child rider is there for.
Investing in life insurance can be frustrating if you aren’t 100 percent sure what you are looking for or if you have no idea how to find it. If you’re in the market for insurance, you’re undoubtedly thinking, “How does term life insurance work?”. Whole life vs term life insurance info!
