How Does Term Life Insurance Work – The Basics

Written By: Eddie Lamb on January 23, 2010 No Comment

Buying any type of life insurance can be a time consuming and frustrating experience if you aren’t sure what you are looking for or if you have no idea how to find it. Term insurance is actually the easiest to understand and the cheapest to buy. If you’re in the market for insurance, you’re probably thinking, ‘How does term life insurance work?’

Term insurance is valid for a particular number of years and is a fairly recent addition to the insurance business, showing up in the early 1970s as a very affordable alternative to the then popular cash value policies. Term insurance is simply life insurance that pays a death benefit ‘ the face value of your policy ‘ if you die during the term, or length, of the policy.

As with any type of life insurance, the younger and healthier you are, the lower your premiums. Depending on your age when you buy your policy you may need to undergo some simple tests such as a blood and urine sample. Other companies also require a cheek swab which is tested for tobacco and drug usage.

Once these results are in, your premiums are determined. It’s actually rare to have a company turn you down based on these results. Worst case, your premiums will be high. In certain situations you may find you have been ‘rated’. In these cases your premiums can be very high but you are still insurable. This rating also stays on your record to alert other carriers that you are considered to be in a high risk category.

If you happen to get rated and you believe the test results are incorrect, or you believe for some other reason that the rating is out of line (perhaps someone misinterpreted notes in your medical file, and this does happen), you have the right to present information from your regular doctor saying you should not be rated and don’t suffer from the health issues which caused the rating in the first place.

Term insurance can cover an entire family, unlike cash value that forces the family to buy policies for each individual. Having an entire family covered is much less expensive under one policy. For instance, a couple of about 35 can have $250,000 of coverage for each of them, and also add a $10,000 rider to cover the kids ‘ all of them ‘ for approximately $110 a month.

As insurance should be, you are paying only for a death benefit with term policies. You are not paying for any type of savings or investments, and there is no reason to anyway. If you die while the policy is active, your survivors get the face value of the policy.

If you have children it is a good idea to add them to the policy as well. Even though many parents shy away from doing this, the rider is meant to do nothing more than pay for unexpected burials. In worst case scenarios, if any happens where more than one child dies ‘ perhaps a car or boating accident ‘ each child is covered for the same amount, whatever the rider is. In other words, if a family loses two children in let’s say a school bus accident, the parents will get benefits to bury both.

Buying life insurance can be frustrating if you aren’t 100 percent sure what you are searching for or if you have no idea where to find it. If you’re in the market for insurance, you’re probably thinking, “How does term life insurance work?”. Whole life vs term life insurance info!