What Is Term Life Insurance and How Does it Work?

6 Benefits of Term Life Insurance

1. Term life insurance is inexpensive.

The majority of Americans overestimate how much life insurance costs by three times. I challenge you to go to our term quoting tool and see how little a policy could cost you. You might be surprised.

2. The death benefit is generally tax-free.

IRA benefits will be taxed. Social Security benefits are often taxed. Your 401(k) benefits are taxed. Most pensions are taxed.

But life insurance benefits? No tax – 99% of the time. There are a few situations in which life insurance payouts are taxed, but our agents can help you avoid that situation.

» Learn more: How Is Life Insurance Taxed?

3. Life insurance is exempt from probate.

If you die, many assets first go through probate (a court-supervised process) before being passed down to heirs. Probate can be costly and time-consuming.

Life insurance death benefits do not go through probate (unless you name your estate or a minor child as your beneficiary–don’t do this) so your beneficiaries will receive the funds much quicker.

4. Term can be converted to permanent for free.

Most term policies automatically include a “term conversion rider” at no charge. Down the road, if you decide that you want life-long coverage, you can convert your term policy into a permanent policy without needing to go through underwriting again.

Why is this beneficial you ask? Well, let’s say you purchased a 20-year term policy and were then diagnosed with stage 4 breast cancer. Normally, an invasive cancer diagnosis is a decline, but not with a conversion rider. The life insurance company cannot decline you or take your diagnosis into consideration when determining your permanent policy’s premiums.

» Learn more: What Is a Term Conversion Rider?

5. You can receive early benefits if diagnosed with a terminal illness.

Most term policies also automatically include an accelerated death benefit rider at no charge.

As an example, let’s say you have a $500,000 term life insurance policy and are diagnosed with heart failure and given nine months to live. Your specific life insurance carrier allows you to cash out up to 75% of the benefit. You decide to take out half of the benefit ($250,000) to check everything off your bucket list. When you pass away, your beneficiaries will still receive the remaining $250,000.

» Learn more: Accelerated Death Benefit Rider: What It Is and Why It’s Free on Most Policies

6. Your loved ones are financially protected.

Term life insurance is best known as “income replacement.” If you have a family who relies on you and you die prematurely without life insurance, what happens to them? They struggle emotionally and financially. If you die with life insurance, your loved ones will still grieve, but they can pay the bills. They can stay in their home. They can go to college.

Get life insurance. Don’t chance that your loved ones will need to turn to family, friends, or even strangers, like with a GoFundMe account, to pay for your funeral or for their groceries.

10 Reasons Why You May Buy a Life Insurance Policy

You need a policy to secure a business loan until it is repaid.
You are getting divorced and your settlement requires a policy to secure spousal maintenance or child support until age 18.
You are buying a home and require a policy until your mortgage is paid-in-full.
You have a family (spouse, domestic parter, or children) who rely on your financial support. You need a policy to replace your earned income.
You wish to leave some money to your family or pay for your final expenses.
You are a key person in a business and your death would negatively impact the success of your company. You need a policy as part of your business plan.
You wish to use life insurance to equalize inheritance of a family farm or business.
You wish to donate to a favorite cause or charity via life insurance.
You don’t want to leave your debt behind after you die. Your policy will pay it off.
You want to fund your kid’s education, wedding, or another important milestone even if you cannot be present to witness the big day.

If you have people who rely on you financially, with how affordable term insurance is and how easy it can be to buy, there is no excuse not have it. Start the process by getting a free, anonymous term quote today.