What is Term Life Insurance?

Term insurance is life insurance coverage that will pay a death benefit in the event of the insured’s untimely passing during the active term. For example, if an individual has a 20-year term plan with a death benefit of $250,000 and passes away in the 15th year, the beneficiary will inherit the death benefit. The concept of term insurance is when a carrier and an insured enter a fixed price coverage for a period.  

Commonly asked questions about Term Insurance: 

How does term life insurance work? If an insured passes away in the contractual term period, the carrier will pay an approved death benefit. The term insurance price is fixed during the contractual period when the policy is signed and placed in force. Premiums are paid monthly, quarterly, semi-annually, or annually. The payment schedule can change throughout the contract through the proper paperwork submitted to the carrier. After the term period ends, unless the policy converts, the coverage renews annually. However, the premiums are no longer fixed and increase significantly after the term ends.  

Does term life insurance have a cash value? No. Term insurance is the lowest cost coverage if the insured dies. Compare term insurance to car insurance. Like car insurance, the policy owner pays for coverage and never recognizes a benefit from the insurance unless something there is a triggering event.  

Is term life insurance worth it? Whether term life insurance is worth the cost depends on the individual’s personal situation. Term insurance is a cost-effective way to protect a family or business in the event of a significant loss. Term life insurance protects the financial future of an entity without excessive out-of-pocket costs. Financial contributions are recouped when the insured passes away. Term insurance is like renting a home. People spend money on rent because the larger financial obligation to home ownership may be too costly. So, smaller premiums are paid on term insurance to obtain protection. In fact, less than 2% of term insurance ever pays out for a death.  

How much term life insurance do I need? How much term life insurance one needs depends on the individual’s situation. A straightforward way to calculate a reasonable amount of coverage includes, at the low end, the amount owed in a mortgage. A more aggressive calculation is a multiple of income versus working years. For example, a 30-year-old can seek 20-30 times their annual income using the concept of income replacement.  

Does a term life insurance policy mature? As indicated by the name, term insurance is a policy contractually issued for a period. During that time, the rates are fixed, and coverage is guaranteed while premiums are paid.  

Can a renewable term life insurance policy be renewed? After the term period, the cost of term insurance is no longer locked in, so the rate can and will increase. Once that process starts, the rates will increase if the policyholder chooses to keep the contract. The best option would be to convert a policy with contract options before the term expires.  

What is a term conversion? Many term policies can convert a term policy to a permanent plan during specific windows of time within the term contract. With a policy conversion, product options are limited. However, there is no additional underwriting required.  

Can you cancel term life insurance? Yes. A term policy is like renting an insurance policy. You have it if you pay for it. If you stop paying for the coverage the policy is terminated.  

Can you borrow against term life insurance? No, a term policy does not hold any cash value.

If you have questions about Term Life Insurance, our team of Life experts is devoted to providing consistent and reliable support for you. EMG Insurance Brokerage is a full-service brokerage general agency based in Houston, Texas. We know it is essential for advisors to access quality products, expert advice, and cost-effective solutions. We follow market trends and continually update carrier offerings. For guidance on how to grow your business, contact us. We are here to support you.