Term Life Insurance

A death in the family is not only emotionally devastating, it can also take a tremendous toll on the future financial security of a family. Suddenly, without the deceased’s income, paying the mortgage or providing for a child's college education may become much more difficult.

Those who buy life insurance generally do so to help ensure their loved ones are taken care of financially.  Life insurance is a promise by an insurance company to pay those who depend on you a sum of money upon your death. In return, you make periodic payments called premiums. Premiums can be based on factors such as age, gender, medical history and the dollar amount of the life insurance you purchase.

In the event of your passing, life insurance provides money directly to the individuals you select, your beneficiaries, who can use the money as they see fit, including:

• Replacing lost income
• Covering basic living expenses
• Paying household debts, estate taxes and funeral expenses
• Funding a child’s education
• Supplementing retirement savings

Life insurance comes in two main types – term and permanent – which may both be available through your workplace.

Term life insurance pays a specific lump sum to your loved ones, providing coverage for a specified period of time – typically until a change in active employment status (e.g. retirement, change in employers). If you stop paying premiums, the insurance stops. Term policies pay benefits if you die during the period covered by the policy, but they do not build cash value. They may also give you the option to port. That is, you can take the coverage with you if you leave your company.

Generally, you should consider a term life insurance policy to:

• Get valuable coverage at an affordable price
• Help cover specific financial responsibilities like a mortgage or college expenses
• Supplement a permanent policy

Permanent life insurance policies do not expire. They are intended to protect your loved ones permanently, as long as you pay your premiums. Some permanent life insurance policies accumulate cash value. That means the value of the policy may grow each year, tax-deferred, until it matches the face value of the policy. The cash can generally be accessed via loans or withdrawals, and can be used for a variety of purposes. This type of policy is typically portable so coverage can continue if employment terminates.

Consider a permanent insurance policy if you want:

• Protection for life
• Payments that stay the same each year
• To put additional money into the policy on a tax-favored basis
• Cash value you can use while you are living

Getting life insurance through work can be an easy way to protect your family. If your employer offers a group plan, consider signing up for advantages that may include:

• Competitive group rates
• Guaranteed issue, meaning you can get a certain amount of coverage without answering health questions or taking a medical exam
• Convenient payroll deductions
• Easy access to enrollment and educational tools that can help you make decisions about the type and amount of insurance that’s right for you
• The confidence of knowing that your employer has reviewed and selected the plan

All you have to do is sign up, and sometimes enrollment is automatic.

Term life insurance is life insurance coverage designed to be purchased for a specific time period, typically between 10 and 30 years. Term life insurance is an affordable way to get maximum coverage throughout that time frame, and so is great for helping to cover specific financial responsibilities, such as paying for a mortgage or funding a child’s education.

While you won’t be able to pinpoint the amount you’ll need to the penny, you can make a sound estimate.  Your goal should be to develop a life insurance plan that, following your death, will allow your family to live comfortably without your economic contribution. Also consider the effect of inflation over time. The amount needed for retirement or college 20 years from now is likely to be significantly higher than today.

To estimate the amount of life insurance your family would need, first calculate everything you now provide for your family including:

• Salary
• Benefits/health insurance
• 401(k) and retirement savings
• Personal services you perform for your family, such as child care, cooking, home maintenance, etc.

Then, subtract your personal expenses including:

• Annual spending on personal needs, such as food, clothing, entertainment, etc.

Life insurance through your workplace may be more affordable than you think. In fact, many people can get term life insurance coverage from a quality company for a surprisingly affordable price.²

Premiums are typically based on factors such as:

• Age, sex, height and weight
• Health status, including whether or not you smoke
• Participation in high-risk occupations

Life insurance gets more expensive as you get older, and the type of coverage you choose will also affect your premium. Rates for term insurance are typically lower, while rates for permanent policies are typically higher.