Life Insurance Basics

What is term life insurance?

Term life insurance can be a simple and affordable option if you need life insurance coverage. It provides coverage for a set period of time or “term” (typically 10–30 years), and is designed to protect your dependents. If you pass away during the term period, your beneficiaries receive a lump-sum payment (referred to as the “death benefit”) which can be used to cover expenses or income loss related to your passing. You select a term based on how many years you need protection. For example, someone who wants to protect an income until retirement or while paying off a home mortgage may select coverage for a term that will take them into retirement or for the term of the mortgage (a 30 year mortgage could be protected with a 30 year term policy). You select the coverage amount based on the financial impact your death could have (if you died tomorrow, how much money would your family need over the years to cover what you would have contributed if you were there). Continuing the mortgage example, the amount of coverage should be at least enough to cover the balance of the mortgage.

You pay a monthly premium for the term to keep the policy in place (similar to car insurance or a subscription). With a term life insurance policy administered by Ethos, your monthly premium will stay the same over the entire duration of the term. If you were to pass away during the term, whoever you designate as a beneficiary will receive a lump-sum payment for the policy proceeds, subject to the suicide and contestability provisions of the policy. What this means is that your family is guaranteed to receive the policy proceeds if you die for any reason after the policy has been in force for two years. If you die within the first two years of the policy as a result of suicide or if parts of the application were not answered truthfully, policy proceeds will not be paid.

At the conclusion of the policy’s term length, you can either elect to let your life insurance coverage end or have coverage continue as provided under the guaranteed renewability feature. This means you are guaranteed the option to renew a reduced amount of coverage (up until the age of 95) without having to go through underwriting (i.e no exams). If you do choose to renew at the expiration of the initial term, premiums will be recalculated at a much higher rate based on your age at the time of renewal. That’s why you should consider buying the right amount of life insurance coverage from the start, or purchasing another smaller policy when your needs change. If you choose not to renew coverage, the policy is no longer in force and insurance coverage is no longer provided. If you were to pass away after the end of the term or renewal period, no term life insurance benefits will be paid.

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