We hear this one a lot. The most common reason people decide to purchase term life insurance is to protect their loved ones from the loss of their income. A life insurance policy ensures your loved ones will receive money (your coverage amount – the “death benefit”) should you pass away. Your death benefit amount gets distributed to your named “beneficiaries”– the people you choose to protect from financial hardship – who can use it however they’d like. People often use it to pay rent/mortgages, for daily living expenses, or education costs.
In other words, term life insurance can protect your family by providing a lump sum intended to replace your income if you were to pass away unexpectedly. Of course, your coverage will need to be in force for your family to receive the benefit, but as you continue to read, you will learn that is pretty easy to do!
Once your policy is issued, you’ll have the flexibility to change your primary or contingent beneficiaries at any time. The beneficiaries you select can be your spouse, children, parents, siblings, or anyone else who depends on you. Keep in mind, if you live in a community property state, some of your death benefit proceeds may be paid to your spouse regardless of the beneficiaries you elect.
Did you know most people overestimate the cost of a life insurance policy by 3 times? Life insurance is probably a lot more affordable than you think.
Your monthly insurance bill is called a premium. This is the amount you’ll pay to a life insurance company while you have coverage. Your premium price depends on the amount of coverage you have, how long you’ll have it (the term – we’ll get to that next), and your risk classification. During the underwriting process (the way that insurance companies determine how risky you are to insure), we look at everything from your medical history to your driving record to assess your risk classification. All of these factors are taken into account to give you your final rate.
Your term length is the number of years you’d like coverage with a term life insurance policy. Ethos offers term lengths of 10, 15, 20, and 30 years. Throughout your term, you will pay a fixed-rate premium for coverage. If you are thinking about using term insurance for income protection, make sure you consider a term length that will cover you for the number of years you plan on working. Doing so will align your income-earning years with income protection for your loved ones.
To get an understanding of how much life insurance coverage you need, you will need to think about your annual income, expenses, and any additional costs you don’t want to leave for your survivors to pay.
First, be sure to tally your final expenses, like your burial and funeral costs. The death benefit can even go toward paying off any outstanding bills and debts you may have left behind, so be sure to include those in your calculations too.
In addition to your burial and funeral costs, you’ll want to estimate the cost of maintaining your household. Think about the day-to-day needs of your family, from your rent or mortgage to food, medical needs, and utility bills.
You should also be thinking about the milestones you would like your dependents to achieve whether you’re around or not. If you are saving for it while you are alive, you will likely want your insurance policy to cover it if you were to die unexpectedly. Whatever your goals are while you are living, it’s always safer to overestimate the cost of these items when calculating your insurance needs.
If you need help with this, we have a coverage calculator that makes it easy to decide what amount of coverage works for you.
It’s understandable to worry about this; the whole point of a life insurance policy is to ensure your family is taken care of after you pass. The only reasons a claim would not receive the death benefit on an active policy would be due to fraud, misstatements, or material misrepresentations of the information provided in your application. For example, if you purposely provided false information on your application, it could be considered fraud. A claim can also be denied if the death of the insured is the result of suicide in the first two years of the policy being in force. If you would like more information on this topic, feel free to contact us or refer to your policy details or ask your insurance company.
We’re so glad you asked. Ethos’ application is all online, with non-commissioned agents available to answer any questions you may have along the way. Get started with an instant, personalized quote here.
We hope that helped clear up and questions you had about term life insurance. One thing is certain, whether you are a young student, budding professional, or new parent - letting your insurance take a backseat could have devastating consequences. With a term life insurance policy, you and your loved ones can rest easier at night, knowing that your livelihood is secure, no matter what life throws in your way.