When you develop your insurance strategy, the most important objective is to effectively address potential risks for you and your family.
An early death is one of the most serious risk factors faced by anyone with a spouse, children, or any other dependents. Such a loss is difficult enough for family members to process and work through. Add in the sudden absence of a major source of income, and the potential problems quickly multiply. An untimely passing can quickly create personal and financial chaos.
Life insurance is designed specifically to address an unexpected death and the many complications that come along with it. Policies can also incorporate the provision of benefits for disability as well as critical and terminal illness, either inherently or through additional coverage included in a rider attached to the policy.
With this type of coverage in place, you can protect your family, and anyone else who depends on you, should the unthinkable occur. Let’s take a closer look at life insurance from common options and notable insurance carriers offering these policies to key benefits and more details about coverage.
Overview of term life insurance
All life insurance policies are intended to provide a benefit when conditions listed in the policy are met, whether due to death, terminal illness, or another covered type of incident. However, there are several types of life insurance policies available on the market. This guide focuses on term life insurance.
Defining term life insurance
The foundation of term life insurance is the exchange of regular payments, called premiums, to an insurer in exchange for a mutually agreed-upon period of life insurance coverage. If a covered incident occurs during the life of the policy, the beneficiary — an individual named by the purchaser of the policy — will receive a previously defined payment. Once the policy term is complete, the insurance agreement ends.
Term life insurance is generally more cost-effective than other life insurance options, which are usually not intended to expire until the insured passes on. Because term life policies can and often do expire while the insured remains in good health, they present a lower risk to insurance companies. That, in turn, means a lower cost for premiums. We’ll take a closer look at pricing later on in this article.
Term life insurance providers
There are many term life insurance companies within the insurance industry, from some of the most high-profile carriers to smaller and more specialized companies. MassMutual, New York Life, and Northwestern Mutual are just a few examples.
National Advisors Group also offers AIG term life insurance. AIG has more than a century of experience in the insurance market and can serve as a stable partner to address insurance needs. By working with one of our experienced and dependable insurance advisors, you can find an AIG life insurance policy that aligns with your specific needs.
Understanding other types of life insurance
The term concept sets this type of life insurance apart from other options that provide coverage, which are called permanent life insurance. These policies are generally more expensive than term life insurance, because of the likelihood of a life insurance company needing to provide a payout due to the insured eventually passing on. Permanent life insurance also commonly incorporates a savings component, which allows the insured to either borrow against, or receive a payout up to a percentage of, the amount already invested.
Let’s briefly review some of permanent life insurance options for a more complete picture of the life insurance market:
- Whole life insurance, which, in its basic form, provides coverage through the entire lifetime of the insured as long as premiums are paid. It also offers the savings and subsequent borrowing or withdrawal component.
- Universal life insurance, which is similar to whole life insurance, but can offer additional flexibility in terms of adjusting policy specifics.
How term life insurance works
Term life insurance is similar to many other types of insurance in terms of its basic structure. Policyholders agree to purchase coverage then receive the benefits, should a covered incident such as accidental death occur, as long as they continue to make their premium payments on time and in full. However, there are a few unique considerations to make when it comes to a term life insurance policy.
Selecting a term length is crucial when purchasing a policy. Some types of term life insurance incorporate a period of time where coverage is guaranteed but the premium can change from one year to the next, and give the insured the power to decide whether to renew on a yearly basis — an annual renewable term policy. Other policies have a guaranteed premium over a defined time period, often in increments of 5 or 10 years. This is called level term life insurance.
Determining the term length that’s best for your needs can be a complex process. By partnering with a trustworthy insurance advisor, you can simplify the process and secure a term life policy that supports your needs and goals.
Assuming the individual who purchased the policy continues to make their payments in full and on time, term life insurance can eventually resolve in one of two ways:
- The policy reaches the end of the term without incident. The policyholder is freed from the obligation to pay additional premiums, but can seek out further coverage if desired.
- A covered incident occurs and the policy provides the corresponding benefit. In certain circumstances, such as a disability benefit paid out due to the addition of a rider to the contract, the policy can remain active even after providing such a payout. In the case of a covered death, the full benefit will be provided and the policy will end.
How term life insurance is commonly used
Term life insurance is most commonly used to address the direct financial consequences of a spouse or parent dying unexpectedly. Without the income that pays for most or all of a household’s expenses, serious issues can quickly arise. Surviving family members can easily face financial pressures and tough decisions, about both the unique costs related to a loved one’s passing and standard bills and expenses.
With an effective term life insurance policy in place, families can have a sense of security even in a worst-case scenario. Through the death benefit, the beneficiary and any other survivors will have access to the funds needed to maintain their expected quality of life and avoid the additional troubles financial instability can bring.
The payout from a term life insurance policy can be put toward any expense — the money is not earmarked for or restricted to certain uses or expenses. With that flexibility in mind, consider just some of the many current and potential future expenses that could be addressed with a term life policy:
- Debt held in shared accounts.
- Standard household expenses.
- Child care and education, from preschool through college.
- Care for any other dependents.
- Utilities and other monthly bills.
- A mortgage.
- Funeral expenses.
A key advantage that comes along with a life insurance payout: The proceeds generally aren’t taxable, according to the IRS. When building a financial contingency plan and in situations where the policy actually pays out, families can usually count on receiving the face value of the benefit. However, specific circumstances can lead to taxes related to a term life insurance benefit being paid. You can speak with your insurance advisor to build a better understanding of any potential tax risks with your specific policy.
What term life insurance covers
The foundation of term life insurance is the provision of a death benefit, should the insured pass on while the policy is active. This is the one unifying concept that exists across all major types of life insurance. Many types of illness and injury can be covered by this insurance product.
It is especially important to review any exclusions included in a policy as you make your decision. These are exceptions to the agreement of providing a death benefit, should the insured pass on. Causes of death that are commonly excluded from a policy include suicide within the first few years of holding a policy, death that stems from participation in illegal acts, and death that results from engaging in an activity recognized as risky or dangerous.
That last point can be a practical consideration for individuals who participate in activities like auto racing or piloting certain types of aircraft. A rider, which is a type of addendum to a standard insurance contract, can be added to some life insurance agreements to provide coverage for these potentially dangerous activities. They can also be used in several other circumstances.
While not universally offered, some term life policies can be modified to also provide coverage for serious or terminal illness, as well as disability insurance. The specifics will depend on the exact language contained in the rider, but the general concept is that the insurer will pay out part or all of the death benefit if a covered incident related to illness or disability occurs.
While it doesn’t provide a payout, a waiver of premium rider is an important concept to understand when considering life insurance options. In certain situations where the insured is ill, disabled, or otherwise can’t earn income, this rider allows for the policy to remain in effect, without payment of the premium, until the insured can return to work.
How much does term life insurance cost?
Relatively low costs are one of the major benefits of term life insurance, at least as compared to other types of life insurance.
Because the policy has a defined end date, as opposed to continuing until the insured passes on, it often represents a lower level of risk for insurers. That means a lower out-of-pocket cost for a policy.
It’s impractical to determine individual pricing without working with an insurance advisor, given that demographic information like age and medical history is taken into account. There’s also the fact that policy length and the value of included benefits can influence the premium price.
However, you can start to build an understanding of how much coverage you likely need. The quickest way to land on an estimate is to multiply your annual salary by 10. Be sure to also include an estimate of college costs, should you have dependents who are likely to attend or already enrolled. A slightly more lengthy process involves reviewing and adding up your own major, long-term financial obligations, as well as determining how many individuals rely on you financially and then tallying the major costs associated with them as well.
Finding term life insurance that supports you and your family
Term life insurance is full of variables, from the length of the term and the amount of coverage needed to the potential to add riders to the standard agreement. Your own stage in life, and the needs of any dependents you have, also greatly influence the process of choosing an effective policy.
National Advisors Group is here to offer a more bespoke and detail-oriented alternative to the standard insurance-buying process. When you work with one of our experienced and dependable advisors, you have access to a personalized risk review process, which is crucial for determining the specific needs you have in relation to a life insurance policy.
Then, your advisor will explore the market, reviewing options like AIG term life insurance, to compile a list of options specifically for your needs. Finally, we present only the most effective policies for your approval.
Get in touch with us to learn more, and check out our virtual agent to quickly get a quote today!