Life Insurance

An Easy Guide to Term Life Insurance

Ethos Life · May 9, 2019
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You may have heard of life insurance. You may have even read that it’s a great way to protect your loved ones if you die. But if that’s all you know about life insurance, you may still be confused. But don’t worry, you’re not alone. Less than half of all Americans have any form of life insurance and 26% of Americans don’t even know what it is. (2017 LIMRA Insurance Barometer Study).

So, what exactly is life insurance?

Life insurance is a form of protection. It’s a tax-free cash payment that goes to your loved ones in the event of your death, allowing them to continue pursuing their dreams without an additional financial burden, and providing you peace of mind.

Life insurance is not required like some other forms of insurance, but if you have someone who relies on you and your income, it’s a necessity.

The vast majority of life insurance is purchased individually, directly from a life insurance company. Fortunately, it’s never been easier or less expensive to get life insurance.

The Different Types Of Life Insurance

Not all life insurance is the same. Policies vary based on length, cost, and what they cover, but at a high level, there are two types of life insurance: term and permanent life insurance.

Permanent life insurance is more expensive than term insurance. Unlike term life insurance, it lasts for your entire life.

Term Life Insurance

Term life insurance is the simplest, easiest to understand, and least expensive type of life insurance. A term life policy costs just a few dollars per month and covers you and your loved ones for a period of time - the term - should anything happen to you during that period. When the term is up, you can choose to renew, apply for another policy, or let it expire.

If something happens to you during the term, your beneficiaries, which are the people you designate to receive the lump sum payout, will receive a tax-free payment. The payout can be used to cover living expenses, debt, a mortgage, or anything else the beneficiaries choose.

A term policy consists of a coverage amount. Put simply, the coverage amount is the size of the payout your loved ones would get should something happen to you. Term policies also consist of a term; the term is the number of years you want the policy to last.

If you can’t afford to buy as much coverage as you’d like right now, you can always buy more later. Even a small policy can make a huge difference in your loved one’s lives and be a great benefit to them.

Permanent Life Insurance

There are two types of permanent life insurance: universal and whole. Unlike term life insurance, it’s good for the entire life of the insured person, and has both a cash accumulation value and a death benefit. However, this type of policy can cost up to 20x more than a term life insurance policy, and can take weeks, or even months, to purchase.

Universal Life Insurance

With universal life insurance, you can increase or decrease your premium payments according to your financial needs, but even the lowest payment is more expensive than a term life insurance policy payment. In fact, despite this “flexibility,” 87 percent of permanent life insurance policies are canceled, leaving no safety net for the beneficiaries.

However, universal life insurance can be useful to those who have maxed out their 401(K)s and all other retirement plans. It can be used to transfer wealth without having to pay estate taxes. It can also be used as a source of income later in life even though it is expensive.

Whole Life Insurance

Whole life insurance has a lot in common with universal life insurance, but the premiums are fixed throughout your lifetime. Those who buy these types of policies usually use whole life insurance as a tax-deferred way to grow their money. Unfortunately, they are often left disappointed as their money doesn’t grow nearly as quickly as it might have through other investments.

Some whole life insurance policies include a guaranteed minimum rate of return; however,. keep in mind that this rate is pretty low. For many freelancers, whole life insurance doesn’t make sense unless you have a multi-million-dollar estate to protect.

Choose Life Insurance Based On Your Needs And Financial Situation

  • Life insurance is a form of protection. It protects the life you’re building and the people you love in the event something happens to you.
  • Despite rumors, life insurance isn’t necessarily expensive and it can be pretty easy to buy.
  • Just a reminder, there are two types of life insurance: term and permanent life insurance.

Term life insurance is great for:

  • People who want the least expensive life insurance option.
  • People who want to protect their family from a loss of income and help them pay off debts, fund college tuition, and retire early.
  • Young people who need to replace income in the event of their untimely death, but don’t have a ton of extra money to spend.
  • People who only need life insurance for a certain amount of time, such as during the time when kids are living at home or until their house is paid off.

Permanent life insurance is great for:

  • People who want coverage, regardless of what age they live to.
  • Retirees who want to leave money to heirs, but also want to spend the money they’ve earned over the years.
  • Managing estate taxes so that heirs don’t have to cut into their inheritance to pay them.
  • Funding for a special needs trust to provide lifelong care for a dependent after the insured person dies.
  • Equalizing inheritance when only one child can be the recipient of property or the family business.

If you have someone who depends on you, life insurance is a necessity. Freelancers aren’t offered policies through employers, so life insurance is especially important. Make sure to take the time necessary to research your options and remember: there’s no better time than right now to buy life insurance.

Ethos specializes in term life insurance, which is temporary life insurance coverage. When you get a policy, you will choose a coverage term of 10, 15, 20, or 30 years in addition to your coverage amount. During that term, you will pay premium payments to maintain your coverage. If you happen to pass away during that term, the entire policy coverage amount will be paid out to your beneficiary. If you survive the term, you will need to apply for a new term policy when it expires if you wish to maintain coverage.

  • Example A: Let’s say a 25-year-old female gets a $400,000 20-year term policy and pays $25 per month. Her beneficiary would receive the full $400,000 in the event of her passing during that 20-year term.
  • Example B: In this scenario, let’s say she lives through the end of her 20-year term and is now 45 years old. At this time, she will have to reapply for a new term policy if she wishes to do so.

Mind you, these examples are hypothetical. The cost associated with term life insurance coverage depends on factors such as your age, coverage amount, and general health, to name a few.

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How Much Coverage Do I Need?

How much coverage you need depends on a variety of factors. There are a lot of myths surrounding life insurance that just aren’t true. For example, some people believe life insurance is too expensive or that a high amount of coverage is unnecessary.

Others might steer clear from insurance because they believe having a policy is only worth something if you die. This isn’t entirely true.

Some term policies come with Accelerated Living Benefit or Long-Term Care options. These are two different riders that can be added to some term policies. The Accelerated Living Benefit rider allows an early payment of a portion of the death benefit if the insured has a terminal illness, a medical condition that requires an extraordinary medical intervention (such as an organ transplant), or cannot perform activities of daily living on their own (such as bathing, eating, toileting, and dressing).

The Long-Term Care rider allows payment of part of the death benefit to the insured in order to help them pay for health care expenses incurred in a nursing home or similar facility. With both the Long-Term Care and Accelerated Living Benefit riders, early payment of the death benefit will be deducted from the amount payable to the beneficiary upon the insured’s death. This allows you to spend a portion of your death benefit or coverage amount before you pass away if you become sick or disabled.

To determine how much life insurance coverage you need, consider the following:

  • Your current income and income goals
  • How much debt you have
  • Your current health
  • Any risky habits or hobbies you have
  • Whether you rent or own a home
  • How many kids you have
  • Your spouse or partner’s financial needs
  • Whether you’ll want to add riders to your policy

The average rule of thumb is to obtain enough life insurance coverage to equal 10x your income, but that can be more or less than what you truly need. You want to weigh all of these factors carefully when determining your needs.

Understanding Insurance Riders

Life insurance riders are added to a policy to modify provisions that already exist. If we were talking about food, your life insurance policy would be the burger, and riders would be all the toppings.

Some riders provide benefits in the event of the insured’s disability, while other riders provide for the partial payment of the death benefit while the insured is still alive (like the Accelerated Living Benefit mentioned earlier).

The ‘Other Insureds’ rider provides coverage for one or more of your family members in addition to yourself. The rider keeps your coverage and premium payment the same throughout your term. It’s called a family rider when you also cover a child. You can include coverage for your children with this rider, and it won’t expire until they are 18 or 21 years old, depending on the policy you have. If you only want to have joint coverage with your spouse, you can do that too.

We’ve also covered disability riders and waiver of premium riders, if you’d like to learn more.

Getting Life Insurance

When it comes to getting a life insurance policy, Ethos makes the process easy. You only need to follow a few steps.

  • Step 1: Get A Quote
    • It only takes a few seconds to do this on our site. You’ll need to provide information like your gender, age, location, general health, and use of nicotine products for an accurate quote.
  • Step 2: Select Your Term & Coverage Amount
    • You decide the duration of your term policy. Be sure to consider your current and long-term needs when choosing a coverage amount and term length.
  • Step 3: Apply Online
    • Once you receive your quote, you apply online. This is where you’ll submit more personal information like your name, address, and details on your medical history. You’ll also name your beneficiaries (the people you’d like the death benefit funds to go to). You can name one or more beneficiaries.
  • Step 4: Processing & Waiting
    • After submitting your application, it will either be automatically approved or sent to underwriting. It’s also possible that you may need to provide additional information for processing. This means you may need to verify some information. Some companies require a medical exam during this stage, but in most cases, Ethos does not require one. We also use Docusign to efficiently send forms and collect signatures so you can receive coverage as soon as possible.
    • After our underwriter approves your application, you’ll have the option to accept the policy. Upon acceptance, your coverage begins, and you’ll start paying your premiums.

Take the First Step

Getting life insurance doesn’t have to be confusing or a hassle. The process can actually be clear and concise. Term insurance is an affordable means to protect your family’s financial future in the event of an unexpected passing. Riders allow you to add components to your policy such as insuring your spouse or children along with the option to receive a portion of the death benefit early for medical reasons.

Ultimately, you’ll have more peace of mind knowing your loved ones are taken care of—no matter what. Take the first step to getting covered by getting a quote today.

Life insurance is affordable
Life insurance is an affordable way to protect your family. Apply with Ethos in minutes.
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