Term Life Insurance

If the main reason you want life insurance is to protect your family from debt in the event of your death, then term life insurance is for you. It is commonly referred to as "pure insurance protection," because it doesn’t have a cash value feature like permanent or universal life insurance. Another difference from permanent life insurance is that term life insurance is set to expire at a certain time, either after a set number of years, or when you reach a certain age.

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Requirements for term life insurance

Like with many types of insurance, a medical exam may be required when applying for a term life insurance policy. The exam will cover your height, weight, medical history, and include a blood and urine test—which are taken to look for specific medical problems. The results of the tests may hinder you from getting approved for the insurance, or increase your rates, depending on the outcome.

If you're a smoker, you will pay more for insurance. No matter what you smoke, if it's cigarettes, cigars or marijuana, you must attest to that on your policy application.

Insurance premiums increase as you age, but with some term life insurance policies, you may be able to renew your policy at the end of the term without having to take another medical exam. Also, if you would like your insurance premium locked in at a certain rate, you can request a “level premium” policy. Your premium rates will only increase after your term expires.

Guaranteed issue term life insurance coverage, also known as "quick issue" or "simplified issues," are ideal if you are having difficulty finding life insurance due to a medical condition or illness. A higher premium is paid, because no medical exam is required—so the insurance company is taking a big risk in insuring you. When it comes to guaranteed life insurance coverage, there may be a waiting period before coverage takes effect, and a chance of a yearly fee is possible.

How much do you need?

There are many factors that should be sorted through when deciding on what kind of coverage to get. Short-term debt, long-term debt, mortgages, outstanding loans and any other financial obligations should be taken into account when making the decision. After you purchase a term life insurance policy, be sure to give it a yearly check-up. Keep your eyes open for the same kinds of products and services at other life insurance companies, because not all companies charge the same amounts. And as always, be sure to read and understand everything before signing it, there may be clauses or fine print that adds hidden-fees.

Another thing to consider as time goes on is how much life insurance you still need. If you purchased life insurance when your children were considered dependents, and they are now grown-up with families of their own, you may be able to save yourself a lot of money by reconsidering your current financial needs. In fact, you might be able to scale back the amount of coverage you have, which will help you save you money.

Determining what’s best

While term life insurance may be good for some, for those who want to build interest and cash value, a type of insurance called variable universal life insurance is available. The perk of variable universal life insurance is that you can change your death benefit and premium payments over time. The economy dictates what kind of interest you accrue, because you invest your cash value in stocks, bonds and mutual funds.

It should be noted that variable universal life insurance and cash values are not like typical investments or savings accounts. If you take out money from it, or put a loan against it, you’re subject to your death benefit decreasing as well as the possibility of getting a tax bill if you exceed the amount of premium paid. Also, as time wears on, more and more of your premium goes to pay for the cost of insuring you.