best life insurance - term life

The Best Life Insurance Policy Explained: How Term Insurance Works and How You Can Get It

Life insurance is one of the most valuable financial tools in your arsenal – with as little as $20 a month, you can ensure that your loved ones will be left financially secure in the event of your passing. As such, investing in the best life insurance policy you can find on the market seems like a no-brainer, but understanding what exactly qualifies a policy as “great” is, in many instances, easier said than done. Because ultimately, there’s no rule of thumb, and it all boils down to your individual circumstances. However, there is one life insurance policy that, in my humble opinion, you can’t really go wrong with.

Keep reading to find out what that is. But first, let’s take a look at the broader circumstances surrounding life insurance in 2021.

Table of Contents

What Is a Life Insurance Policy?

A life insurance policy is a contract between you and a life insurance company where, in exchange for a payment called an insurance premium, the company agrees to pay a sum of money called a death benefit to your beneficiaries if you die during a particular time frame. Life insurance comes in various shapes and sizes and offers protection to individuals from all walks of life. Policies are highly influenced by factors such as age, gender, health status, and coverage preferences.

What Are the Main Types of Life Insurance?

While there are various types of life insurance policies that you can choose from, the most important classification concerns duration: depending on how long you want your coverage to last, you can opt for a permanent or temporary insurance policy.

About Permanent Life Insurance

A permanent life insurance policy remains available throughout your entire life. Whole life insurance is probably the most popular type of permanent coverage, but if you’re interested in a policy that doesn’t expire, you can also look into universal life insurance and its variations. One of the most important traits of permanent insurance is that it accumulates cash value over time, so provided you regularly pay your premiums, your policy can double down as a savings account that you can borrow against or even use to finance your coverage.

  • Whole Life insurance. Whole life insurance policies are the rockstars of insurance: love them or hate them, everybody knows ‘em. The principle is quite simple – the premiums and the death benefit stay the same throughout the policy’s lifespan and you receive a guaranteed rate of return for the cash value. Whole life insurance is criticized for being quite expensive, however, and some financial experts believe that you’re better off with a term policy and a separate savings account, as maintenance costs would be lower and the overall payout better.
  • Universal Life insurance. Universal life policies are slightly more flexible than their whole life alternatives, in that both the premiums and the death benefit can change over time. Premiums tend to become higher the older you become, but the cash value earns interest over time and may be able to cover the increased rates. Upon the death of the insured, beneficiaries will be entitled solely to the death benefit. As with whole life insurance policies, some financial advisors are of the opinion that most people would be happier with a different arrangement, usually involving a term life insurance policy and a savings account.

Nonetheless, permanent policies are a good option for lots of people. For example, if you have a disabled spouse or child with little chance of becoming financially independent, getting a whole or universal life policy would make a lot of sense. Also, if you find the cash value element attractive and are looking to generate some additional income, by all means, get a permanent policy! For most people, on the other hand, a term life insurance policy is more than enough to ensure adequate protection.

About Term Life Insurance

about term life insurance

Term life insurance is a very simple, effective, and cheap policy that guarantees a payout if you pass away during a specific period of time – usually 5, 10, 15, 20, or 30 years. It doesn’t accumulate cash value, and if you outlive your policy you won’t be able to access the payout. However, the premiums are very affordable and you can often renew it for another term or convert it to a permanent policy.

Types of Term Life Insurance

Term life insurance makes the most sense for young, healthy adults who are looking to ensure that their loved ones won’t be left financially burdened in the event of their death and that outstanding debts or college tuitions won’t be impacted by their passing.

There are several policies you can choose from:

  • Level term policies, providing a fixed death benefit in exchange for fixed premiums.
  • Decreasing term policies, which have a death benefit that declines on a yearly basis while the premiums stay the same. These policies are usually taken out alongside a loan or a mortgage and match the coverage with the principal.
  • Annual renewable term policies, which can be renewed regularly without additional proof of insurability. Note that the premiums become progressively pricier the older you get, so you may be better off with a level term policy.
  • Return of premiums term policies, where in exchange for higher rates you are entitled to – you guessed it – having the money you spent returned to you once the policy expires.

How to Get the Best Term Life Insurance Policy

The main advantage of buying term life insurance is its price: you can get it for cheap provided you’re young, healthy, and opt for a reasonable amount of coverage. Factors that influence your insurance rates include your age, gender, medical history, nicotine usage, hobbies, criminal history, and credit score.

As always, the first thing to do when shopping for term life insurance is to compare quotes. You can do it online using standard quote comparison tools or with the help of an independent insurance broker in Franklin, TN such as Williams Insurance Group. By going the second route, you’ll get in-depth, personalized quotes that take into account your preferences as well as your personal information.

Once you decide on a policy and get in touch with the carrier, you’ll likely have to undergo a physical examination to assess your overall health status. The carrier may also conduct a quick background check to corroborate the information you provide: they may review your medical records, access a prescription drug database, and contact the DMV for your motor vehicle report.

Once everything is cleared, you can agree on the coverage and enjoy the peace of mind that comes with a high-quality term life insurance policy.