How Does Term Life Insurance Really Work?
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 got its name from the simple fact that the insurance is purchased for a specific period of time, or a term. The term usually runs anywhere from ten to forty years and they go up in five year increments in between.
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.
The results of these tests will help determine your premiums. Even someone who does have some health issues can still be insured. Things like diabetes or high cholesterol might make your premiums go up, or depending on how bad the problem is, you might be 'rated'. This is a category that is literally a red flag, but you can still get cover albeit at a higher premium rate.
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.
A term policy can be purchased for an entire family, including children. This is a significant improvement over cash value insurance where each person needs to have a separate policy. A couple in their early 30s for instance, can easily get a policy for $250,000 for each, and a rider of $10,000 for the children (all the children combined, not each one!), for about $100 a month.
With term insurance you are buying only a death benefit. There are no savings or investment plans attached to your life insurance, and that's the way it should be. There is no reason to mix the two! Should you die during the time the policy is in effect, your beneficiaries will be paid the face value of the policy immediately.
With the children, many parents are hesitant to insure children because they think it brings bad luck, however, if anything did happen where one of the children actually died, the $10,000 rider would at least pay for the burial, and that's exactly what it's for. Should anything happen to more than one of your children, for instance they might be involved in a horrendous car accident, each child is covered for the same $10,000.
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