Life is full of risks, especially if you have a spouse, children or other dependents who rely on you for financial support. You could suffer an injury or illness that limits your ability to work. Your home may need a costly repair that drains your savings. Or the market could take a downturn, which could hurt your ability to save for retirement.
Perhaps one of the greatest threats you and your family face is the possibility of you passing away unexpectedly. Granted, the likelihood of you dying may seem small. It’s possible, however, and if it were to happen, your family could face a catastrophic financial challenge. They could be left with a lack of income, sizable debt and other difficult issues.
Life insurance is an effective tool to address this risk. A wide range of types of insurance are available, with varying benefits and premium requirements. Many people choose to use term insurance to address their risk exposure because it’s affordable and convenient. Below are some common questions and answers about term insurance to help you determine if it’s the right tool for you:
How does term insurance work?
Term insurance provides protection for a limited period of time, such as 10 or 20 years. This period of time is established when you purchase the policy. Generally, the longer the term, the higher the premium.
If you pass away during the term, your beneficiaries receive the lump-sum, tax-free death benefit. If you don’t pass away during the term, the policy lapses, though some policies offer other options.
All of your term insurance premiums go toward the cost of insurance. This means your policy won’t accumulate cash value, as is the case with permanent life insurance policies. However, everything else being equal, a term policy is usually much more affordable than its permanent insurance counterpart.
What happens at the end of the term?
Often the biggest question about term insurance is what happens at the end of the coverage period. The simplest answer is that the policy lapses when the term ends. However, that’s not the only option.
You could also renew the coverage. If you do, however, the premium will likely be recalculated to reflect your older age. That means your premium will likely increase. You also may have the option of converting your term policy to a permanent policy. Again, the premium will reflect your current age and the fact that the new policy is permanent, so it will likely increase. However, conversion could be the right option depending on your needs.
Who could benefit from term insurance?
Term insurance is an effective and affordable tool when you have a finite insurance need. For example, you may want to use a term policy when you have minor children in the home. You may not need as much coverage when your children grow up and move out of the house, so it may not be a problem if the term policy expires at that time.
You also may want to use term insurance if you take out a sizable loan. For instance, if you have a 30-year mortgage on a home, you may want to purchase a corresponding term policy. Your spouse can then use the death benefit to pay off the mortgage if you pass away. In fact, many lenders require you to own life insurance before they’ll close on a sizable loan.
Ready to develop your insurance strategy? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17963 – 2018/9/4
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