Term Life Insurance

The Why, When, What, Who, and How of
Term Life Insurance

This article is a brief explanation of the basics of term life insurance and how it can add value to your overall financial plan. Below are answers to 4 questions about term life insurance and it's benefits.

WHY Buy a Term Life Insurance Policy?

Because none of us know when our time will come to an end. When that day comes, we need to protect our assets and the people that depend on us. Term life insurance is peace of mind when it comes to protecting what matters most. Consider a family of four. If the bread winner dies, there would be a large gap to fill when it comes to rent/mortgage, bills, and child care. Family members might be able to help in the beginning, but there is no telling for how long that help will last. They might move, have other responsibilities, or don't have the time anymore. And that is WHY term insurance is peace of mind, it also allows you to mourn properly in a time of hurt and uncertainty.
Social security can help by granting access to the bread winners social security benefits. But will this be enough to cover the whole family? Click on this link www.ssa.gov/benefits/survivors/ifyou.html to learn more about social security benefits for survivors. Social security will pay a small lump sum of $255 as a one time death payment.  Can you depend on social security? The answer is, WHY would you! You wouldn't, because term life insurance guarantees a tax free death benefit.

Some policies also come with Living benefits. Like terminal illness, critical illness, and chronic illness coverage. These policies will allow you to use the death benefit when professional help is a must. This extra coverage is a big reason WHY people are buying life insurance, rather than a stand alone long term care insurance policy. 

WHEN to Buy a Term Life Insurance Policy?

The sooner the better! The four main factors in pricing term life insurance are age, sex, health, and tobacco use. I will break down why these main factors influence the sooner we start the better WHEN it comes to buying a policy.
WHEN it comes to age, the younger we are the lower the life insurance cost. A 20 year old female who is in the best health class would pay a monthly premium of $15.72 for a 20 year term policy for $500,000 death benefit. A 50 year old female in the best health class would pay $55.56 a month for the same coverage. That's 3.5 times more in premium. Most insurance companies have an age range between 18 to 85 to qualify for a term insurance policy. The table below shows the premium amount for a 20 year term policy for $500,000 death benefit at different age groups. Guess what! The sooner we start the better.
Term Life Insurance Quote
Sex has a significant impact on premiums that you pay on a term policy. On average term life insurance is cheaper for women who are the same age and have the same health profile as men. If we compare a 20 year old male to a 20 year old female in the best health class, the male would pay $19.07 compared to $15.72 for the female. That's $3.35 a month more in premium payment, or 1.2 times more. If we compare a 50 year old male to a 50 year old female in the best health class, the male would pay $71.43 compared to $55.56 for the female. That's a difference of $15.87 a month more in premium payment, or 1.3 times more. So to keep the theme going, the sooner we start the better, especially for males.

Health and age go hand in hand for the most part. The younger we are the healthier we tend to be, and we are more likely to out live the term of the policy, but this is not always the case. A healthy 50 year old who is in great health might be able to get a better price than a 20 year old who is in poor health. Yet this is a rare situation, so the healthier you are the cheaper the policy will be. Life insurance companies have made it as simple as possible to be approved for a policy without a medical exam during the COVID-19 pandemic. However you will need to have a medical exam for certain health conditions, activities, or habits that can harm your health. Example are sleep apnea, sky diving, or drinking and smoking tobacco. Use this link to run quotes and compare term life insurance for different ages and health ratings app.back9ins.com/apply/MohamadBibi.

Finally, tobacco use does increase the price of a term insurance policy. Since life insurance is based on life expectancy, tobacco use lowers life expectancy and will affect your health rating. If tobacco is detected in the medical exam, you will get a tobacco rating. Yet you can buy a policy with a non-tobacco rating if you smoked in the past. If you stopped smoking for 5 to 7 years, you can get a non-tobacco rating, but this does depend on the carrier. So the best time to buy a term life insurance policy is WHEN you have stopped smoking for a certain period of time, or if you never smoked. Details like this is why it's best to work with an independent life insurance agent. They can walk you through the details WHEN you are ready to buy and help get you the best price, with the right insurance company.
When to Buy a Term Life Insurance Policy

WHAT Type of Term Life Insurance Policy Should You Buy?

There are many types of term life insurance, but we will focus on the 3 main types. Traditional/Renewable term, convertible term, and return of premium term. To qualify for these policies you would have to take a medical exam. Some companies will approve your policy without a medical exam within a day or two, if you meet their health qualifications. 
What term insurance
Traditional term also know as renewable term is the most common term sold and is the most cost effective. It comes in 10, 15, 20, and 30 year term periods. During the term period the premium and the death benefit do not change. After the term is up it becomes an annually renewable term policy. To keep this policy in force after the term period is up you, would have to pay a new premium amount annually. This annually renewable amount is 
much higher than the fixed term premium. I tend to not recommend this type of policy. If the client does not renew after the term period ends, they will no longer have life insurance.

Convertible term insurance works like renewable term. The main difference is that you can convert this policy into a permanent life insurance policy. The convertible term policy I recommend also comes with living benefits and costs a little bit more. WHAT does it mean to convert the term policy into a permanent life insurance policy? This feature allows you to continue your coverage into a fixed indexed universal life insurance policy, or a whole life policy. This way you can continue your coverage for as long as you live. 

WHAT are Living benefits? 
Terminal Illness: When the insured has a medical condition with a diagnosis of 24 months to live. 
Critical Illness: Medical conditions that fall under critical illness are heart attack, cancer, major organ transplant, stroke, kidney failure, multiple sclerosis, and other illness.
Chronic Illness: Is when you are unable to care for yourself for 90 consecutive days and need assistance with two out of the six Activities of Daily Living (Bathing, dressing, eating, toileting, transferring, and continence) or you are cognitively impaired and pose a danger to yourself and others and need substantial assistance.    
This policy allows you access to your death benefit to cover you in all three types of illness. I recommend this term policy the most, because of the benefits listed above, but mainly for the convertible option.

Return of premium term is the most expense term policy. This policy will cover you for the full term as long as you pay your premium. Once your term expires, the insurance company returns the premiums paid back to you.

WHO Should Buy a Term Life Insurance Policy?

Term life insurance is not just for married individuals with or without children that are looking to maintain their family's standard of living. It's for single people, stay at home parents, and small business owners.
Once again, term life insurance provides families peace of mind. You can continue providing for your family by
• Replacing income
• Paying off a mortgage
• Funding children's education
• Maintaining or improving your family's standard of living
WHO Should Buy a Term Life Insurance Policy
If you are single and you have a terminal illness, critical illness, or chronic illness, the living benefits rider will grant you access to your death benefit to cover expenses. If you die, it will cover your funeral expenses and give you a choice to donate to a charity of your choice, or pay a lump sum tax free death benefit to family members.
It also helps replace a stay at home parents value. A stay at home parent provides support for the family in the form of
• Child care
• Transportation
• Chef
• Teacher
• Life coach
If one parent is working to provide for the family, traveling for work, or gets sick, the stay at home parent provides support for the family. But WHO will provide this support if the stay at home parent dies? A term policy will help in this difficult time, by giving the surviving parent time to organize and adjust to this new reality.

Small business owners must protect what they have worked so hard to build by insuring their business. But what happens when the owner dies? The business loses it direction and needs time to adjust to this catastrophic loss. A term policy would be able to give the owners family, business partners, or management team time to adjust. For example, if the beneficiary is the business owner's partner, the term policy will allow for the purchase of the deceased partner's share in the business, payoff business debt, or higher a replacement.

HOW I Can Help You?

My name is Mohamad Bibi, I am a independent life insurance agent who advocates on behalf of my clients to obtain the lowest price, meet their needs, and treat them with dignity and care. I work for my clients, not the insurance companies. After completing a quick assessment of my clients needs, I go to work on finding the right product, with the right insurance company, at the right price. I put my clients needs above all else.

HOW can I help you with your protection needs?

Mohamad Bibi 04/20/2021

Information in this blog are opinions and should not be taken as legal,  accounting, or financial advice.
Set an appointment for an evaluation for your Term Life Insurance needs.
Parsons Life Insurance Services, Insurance Agent, San Jose, CA