Financial Security: 3 People that Benefit from a Term Life Insurance Policy
Term life insurance is a type of insurance policy that insures the life of the policyholder for an explicit amount of time. There are several different kinds of life insurance policies, but today we will discuss term insurance and who can benefit from it.
What is Term Life Insurance?
Term life insurance is a type of life insurance that is only for a specified period of time, usually 10, 20, or 30 years. If the policyholder dies during this period, the policy will pay out a death benefit to the insured’s beneficiaries. Beneficiaries are the people or estate that the insured elects to receive the death benefit upon their passing. If the policyholder outlives the policy, there is no longer a death benefit that pays out (unless they decide to renew their term at new rates).
Term life is typically the cheapest life insurance option due to it having a specified term length and simplified function. Other types of life insurance include whole life, universal life, variable life, and indexed universal life.
Who Needs a Term Life Policy?
Many people can benefit from a term life policy. Generally speaking, it is a good fit for younger people who are starting families, buying homes, or paying off student debt. Due to low monthly premiums, it is an excellent way to protect your family from unexpected events that could cause financial hardship. Here are three groups of people that would benefit from having a term life insurance policy.
Homeowners
People that have a mortgage loan should also have a term policy. This is a useful financial tool for ensuring the wellbeing of your family after you pass away. In the event of your death your policy will pay out the amount of the loan so that your family can continue to own the house and not have to worry about making mortgage payments on it.
A decreasing term life policy is usually used for mortgage protection. For this type of policy the premium will remain stable throughout the policy period, but the death benefit will decrease over time. In most scenarios the death benefit matches the face value of the loan. The reason people would opt for this is that as your mortgage loan is paid down, the death benefit of the life insurance policy decreases to reflect this.
This is the most cost-effective option as you are not overpaying for more insurance than you need to cover the amount of the loan. Without this type of financial protection, your family would either have to continue making mortgage payments or sell the house.
For people already struggling with the loss of a loved one, worrying about keeping up on payments or where they are going to live is an additional burden. This can easily be remedied with the proper insurance coverage.
People with Children or Dependents
Another group of people who should seriously consider a term life policy are parents and people with dependents. If you were to pass away, what financial support would your family have? It is common for parents to purchase a policy that is long enough to cover them until their kids are out of college.
The idea behind this is that the kids are guaranteed to have funds for living expenses and college tuition until they are able to support themselves independently. This type of policy allows the policyholder to have peace of mind that their kids will be alright if they were to unexpectedly pass away.
Business Owners
Lastly, if you own a business, you can benefit from a term life policy in more ways than one. Let’s look at the different ways a term life policy can provide financial protection and peace of mind for business owners.
Key Person Coverage
According to Nationwide, a key person is “someone who has a highly specialized role or is responsible for bringing in a large share of sales”. In other words, these are people that are very difficult to replace due to their expertise in their department. These people are important enough to their business that if they were to unexpectedly pass away it would cause a severe financial impact on the business. For this reason, term life insurance on these individuals can provide the business with funds to be able to get through this difficult transition while they find a replacement for the lost employee.
Debt Protection
Businesses often have debts, loans, and other financial burdens in order to fund their operation. If the business owner dies, the surviving owners and partners of the business can be placed in a difficult financial situation. Depending on the loan, they can still responsible for repaying the debt. Fortunately, a term life policy can pay off the business debts if the business owner dies, relieving the surviving members from having to worry about it.
Summary
While there are multiple kinds of life insurance policies, a term life is a sufficient fit for most people. Although it is not the best option for retirement planning, term life is a valuable financial tool for people wanting to make sure their family is taken care of in the event of their untimely death. Being the cheapest option, it provides you with the most coverage for the lowest price compared to other types of life insurance.
People with mortgages, families and businesses should seriously consider a term life policy. If you are interested in learning more about term life and what coverage options would best suit you and your family, contact Narrows Insurance today and one of our experienced agents will reach out to you with more information.
