How Does Term Life Insurance Work?

There are many different types of life insurance designed to help plan for your expenses after your death. Life insurance can help pay off bills or be designated to individuals for certain expenses. Determining the right type of insurance for your needs can be difficult. Here is everything you should know about term life insurance.

Cash Value and Payouts
There is no cash value to the policy. You pay in your premiums for a set time frame and if you die during the policy term, the total death benefit of the policy will be paid out. If you outlive the policy term, there is no policy or benefit. You will receive no cash from the policy, but you are allowed to take out another policy for another term.

Policy Period
These are set periods of protection, typically ten to twenty years but may be other time periods. These set protection periods are the time that the premiums will be made and if death occurs within the policy period, the death benefit will be paid out in a lump sum.

Costs
Term life insurance is usually the cheaper option since there is no cash value and if you don't die within the policy term the premiums are forfeited. Whole and universal are more expensive and ROI (return on investment) policies are as well. There are three rate classes that are typical among most insurance companies. These include:

    Super-Preferred - This class rate is for those that have a very low risk assessment. They have a great medical history and do not take many risks in life that would cause them harm.
    Preferred - This class has a lower risk factor that standard rates, and a good history of health.
    Standard - Good health and a generally low-risk lifestyle can get this rate.

There are other rates than these, and you can see these listed as "smoker's policies" and such. If you have pre-existing conditions, high cholesterol, smoke, drink, or other risky medical items you can still find policies, just at a higher rate.

Where the Premiums Go
Your term life insurance premium goes for many different things, including taxes, the death benefit, and company expenses. The premiums paid can vary for the exact same policy and depends greatly on the age, health, sex, and other items of the policy holder.

Talk over your insurance options with your family members, making sure they understand what your seeking. After choosing the policy that fits your life best, tell those closest to you the policy details and where it is located so that it is easier after your death to dispense funds. Always pick the policy choice that is right for you, and not what the popular opinion is among your friends and family.