We’ve all seen the TV commercials—term life insurance for just a few dollars a month. While these
advertisements may be based on very favorable situations, the general premise is true. Term life insurance is the simplest and most inexpensive form of life insurance. And it can provide the peace of mind that comes from protecting your family at a very low cost. Even with its plain vanilla image it’s important to understand some of the basics before purchasing.
Term life insurance provides the largest immediate death benefit for the minimum premium dollar. When compared to traditional whole life policies, term life insurance is substantially cheaper. Its reasonable rates allow for the purchase of much larger coverage than can be afforded from permanent life insurance. Term insurance covers you for a specified period of time, usually 10, 15, 20, 25 or 30 year periods. As the name implies, term insurance is temporary, for a set period of time. Unlike universal or whole life insurance it does not accumulate cash value.
When planning for your family’s financial future it’s important to keep in mind that term life expires and it is possible to outlive your policy. If you’re looking for permanent insurance that builds cash value whole life insurance may be the answer for you. Term life insurance on the other hand is often referred to as pure insurance protection because it builds no cash value. Its primary purpose is to provide for the financial responsibilities of the insured in an affordable manner.
Determining How Much You Need
There are several methods used to calculate an individual’s need for life insurance. They include but are not limited to, rule of thumb, human life approach, and needs based approach.
Rule of Thumb
The most agreed upon rule of thumb is that an individual should be insured for about 10 times his or her annual salary. If the insured makes $50,000 a year, a policy in the amount of $500,000 would be appropriate. This is the simplest of all the methods for obvious reasons.
Human Life Approach
This method determines what your economic contribution to your family would be over your expected lifetime.
The most comprehensive method. All upcoming expenditures are reviewed to determine the amount of insurance needed. Total assets are subtracted from the total financial obligations to determine the amount of life insurance needed. These obligations commonly include mortgage payments, future educational expenses, future income for family, funeral expenses, and more.
Without a doubt straight term offers the best bang for the buck of all the life insurance types. Combine that with the fact we’re living longer healthier lives and you’ve got a pretty attractive arrangement. The number of deaths in individuals age 25 to 44 has decreased significantly over the past ten years, resulting in individual life insurance premium price drops of 5 percent on average since 2000, according to the Insurance Information Institute, making term life insurance more affordable than ever.
Term life insurance may be one of the best deals in town, but it pays to shop around when looking for a term insurance quote. You’ll want to find a qualified agent that isn’t tied to just one single insurance company. This provides you with the ability to choose the most competitive rate from a number of high rated carriers. It is highly recommended that you choose an “A” rated company or higher. After all you’ll want your insurer to be around when you’re 20 years into your policy.
All information herein has been prepared solely for informational purposes. AMAC, Inc., does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party. All such information is provided solely for convenience purposes only.