What is Term Life Insurance?

There is a funny scene in a Woody Allen movie where a prisoner is punished by making him sit in an underground chamber with an insurance salesman. Let's face it, most of us don't like worrying about or buying things like life insurance, and we don't like strangers peering into your background, health history, personal life, etc. And life insurance is one of those products that is usually "sold" to you - most people don't actively go out and buy it. What is term life insurance and how does it work? Term life insurance is different from whole life insurance or permanent life insurance in several ways. Think of term life insurance as car insurance for your body. It is purchased on a year to year basis - if you die that year your beneficiary gets paid (just like if you were in a car accident your car gets fixed), if you don't die the premium is forfeit forever and the insurance company keeps it, just like in car insurance. Whole life is different in that it is also used as an investment vehicle, allowing you to build up equity in your policy (cash-value) that you can borrow against or take out if you decide to discontinue coverage. As long as you keep the whole life policy up to date, you are guaranteed the payout when you die (or we should say, your beneficiaries will get the payout).

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Term life is a little different. It lasts only for a specific term - ie, 5 years or 10 years. When the term ends, you no longer have life insurance coverage, and you get no money back (unless you died). It is meant to cover people for shorter periods of time, like when they have children to raise or haven't paid off their mortgage yet. Like all insurance products, it is priced according to risk, with the underwriter planning on making a profit off of you -- chances are, you will pay in more than you will ever get out. But insurance isn't meant to be a way to make money, it is meant as a defense against disaster and unexpected events, like premature death, car accidents, home fires, etc. Since most people don't die until they are 75+ year old, most term life policies for people aged 30-50 will never have to be paid out, so one big advantage of term life insurance is that it is normally a LOT cheaper than whole life policies.

What kind of medical questions or tests are required to get Term Life Insurance? How much does Term Life Insurance cost?

When you apply for Term Life Insurance, more often than not you will be required to get a physical which involves things like a blood test and EKG. They normally check blood pressure, height, weight, etc. You will also have to answer a battery of questions related to your health and health history. The big questions are things like, have you used tobacco in the last 12 months? do you have HIV? have you been hospitalized or treated for any chronic illnesses? any treatment in last 5-10 years for cancer, paralysis, arthritis, diabetes, emphysema, alcohol or drug abuse, heart conditions, etc.? Answering yes to any of these questions doesn't necessarily disqualify you from being eligible for term life insurance, but it definitely affects your rates. The term life insurance rate you are quoted depends on 4 main factors - your age, the length of the term, the amount of coverage, and your health. Can I get term life insurance without a medical exam? Can I apply for term life insurance online? Sure, some companies offer what is called "no medical life insurance" - you can just fill out an online form, answer some medical questions, pay, and get coverage. Since this is riskier for the insurer, rates are normally higher than if you completed a medical exam to affirm our health. You can visit sites like eQuote.com or Intelliquote.com for instant term life quotations.

How can I get a Term Life Insurance Quote?

All the big insurance companies you have heard of offer term life insurance -- if you already have an insurance agent for your car or homeowners policy, call them up and ask them about their life insurance offerings. Statefarm.com offers an online term life insurance quote, along with lots of helpful information about life insurance. There is also Prudential, MetLife, AIG, New York Life, Farmers, even Fidelity, GEICO, and Bank of America offer term life insurance. You can begin the application process on most of these websites, and then someone will contact you to complete the process and arrange any medical exams or other in person meetings. You can usually get a price quote from these companies in advance, assuming you are in their "preferred" class with certain levels of blood pressure, weight, cholesterol, etc. Once you take the medical exam, you may find out you are not in perfect condition and thus receive a higher quote than you were originally given.

What are the advantages of Term Life Insurance? Who buys term life?

The main benefit or term insurance is that you can get a lot more coverage and protection at a lower price vs. whole life insurance. So let's say you are 28 years old, have 2 children, and want to provide life insurance benefits for them in case you die before they get out of college (20 years from now). With term life insurance, you can easily afford a $500K or $1M policy (if you are in good health, could easily be $800 or less annually). And the premiums are generally fixed over the life of the term, which means they never go up. So if you die in the next 20 years, your kids get the $500K payout -- if you survive, your kids make it through college and become financially self-sufficient, you are no longer worried about what will happen if you are not around, and the policy ends. You no longer have coverage, and you are out your 20 years of premiums. Some insurance companies offer something called Return of Premium, which is an additional priced option on your term policy that guarantees you that you will get back 100% of the money you paid into the policy, which means if you survive the term you basically got free life insurance for that period. Like we said, this costs more than a standard term life insurance policy, but may be something you want to talk to your insurance agent about. How much term life insurance should you buy (the amout, or death benefit)? BudgetLife.com offers, among other things, a term life insurance calculator that takes into effect your salary you are trying to replace, how many years you need coverage for, and inflation and interest rates to give you an estimate of how much insurance you might need. They can also get you a term life insurance quotation from 15 different insurance companies.

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