How To Increase Your Term Life Insurance Coverage

Term life insurance is a contract between a policyholder and an insurance company that provides a death benefit to the policyholder's beneficiaries if the insured person dies within the time period of the policy. It is the simplest and purest form of life insurance and is typically more cost-effective than a permanent whole-life policy. Term life insurance policies have no cash value and are ideal for temporary protection to cover financial obligations such as a mortgage, education costs, or income replacement. The policy length can vary from 10 to 30 years, with 20 years being the most common. The premiums and payout usually remain level throughout the term, making it a straightforward option with minimal maintenance for policyholders.

Income replacement

• The primary purpose of this plan is to offer a death benefit, which is a lump-sum payout to your beneficiaries if you pass away during the policy term.
• Instead of a single lump sum, the income replacement term plan can provide a regular income stream to your family, typically in the form of monthly or annual payments.
• These plans are flexible and can be tailored to align with your family's specific requirements. You can choose to receive the payout as a lump sum or in periodic payments.
• Income Replacement Insurance plans typically do not have a savings or investment component. They are pure protection policies focused solely on income replacement.
• Premiums paid for term insurance plans may qualify for tax benefits, depending on your country's tax laws.
• You can designate beneficiaries who will receive the income payments. These can be family members, dependents, or anyone you choose.
• Income replacement insurance offers peace of mind, ensuring that your loved ones will have financial support even if you're not there to provide for them.

When calculating the income replacement amount, it is recommended to multiply your annual salary by the number of years you want to cover. For example, if your annual salary is $60,000 and you want to provide five years' worth of coverage, you would need a $300,000 policy. It is important to note that this calculation only reflects your base salary, and you may need to account for anticipated raises and additional expenses.

Additionally, consider the value of daily tasks when determining the coverage amount. If you are a stay-at-home parent, for example, your free child care, cleaning, and cooking services would be costly to replace. A life insurance policy can help cover these expenses in your absence.

Mortgage protection

Term Life Insurance Basics

Term life insurance is a straightforward and cost-effective way to provide financial protection for your family. It is a contract that covers your life for a specified period, known as the "term". During this term, you pay regular premiums to the insurance company, and in return, they guarantee a tax-free payout, known as a death benefit, to your beneficiaries if you pass away. This benefit can be used to cover various expenses, including mortgage payments, funeral costs, and education fees.

Term life insurance is ideal for temporary protection, covering financial obligations such as mortgages, education costs, or income replacement. The most common term lengths range from 10 to 30 years, with some companies offering up to 40 years of coverage. The level term is the most popular type, where your premium and payout remain the same throughout the term.

However, it's important to note that mortgage protection insurance is different from mortgage life insurance. With mortgage life insurance, the lender is the beneficiary, and the policy's value decreases over time as the mortgage balance declines. In contrast, with term life insurance, you choose your beneficiaries, and the insurance amount stays constant as long as premiums are paid.

Customizing Your Coverage

When using term life insurance for mortgage protection, you have the option to customize your coverage to fit your specific needs. You can choose between using one policy or a combination of two policies:

Option 1: Using One Policy

You can purchase a term life insurance policy with a benefit amount that matches the outstanding balance of your mortgage. This policy lasts for the full term of your mortgage, typically 30 years. If you pass away during this period, your family can use the death benefit to pay off the remaining mortgage or make continued payments.

Option 2: Using Two Policies

In this approach, you purchase a whole life insurance policy to provide long-term coverage and a term life insurance policy to cover the early years of your mortgage when the amount owed is the highest. This combination ensures that your family can pay off the mortgage or continue making payments if something happens to you.

Additional Considerations

Remember that your financial obligations go beyond just your mortgage. It's essential to consider other expenses, such as childcare, retirement savings, and medical costs, when determining the coverage amount. Additionally, factors like age, gender, health, and smoking status can impact the cost of term life insurance.

In conclusion, mortgage protection through term life insurance is a reliable way to establish financial stability and ensure that your family can retain their home even in your absence. By customizing your coverage and choosing the right type of policy, you can provide valuable peace of mind and security for your loved ones.

Final expenses

Final expense insurance is a type of whole life insurance policy that covers medical bills and funeral expenses when you die. It is also known as burial or funeral insurance. It is a popular choice among seniors due to its affordable price, smaller benefit amounts, and focus on covering funeral costs.

Final expense insurance offers fixed premiums that do not change over time and do not expire if premiums are paid. There is no medical exam required, just a brief health questionnaire. Coverage is available for those aged 20-75, with affordable options for seniors.

The death benefit from final expense insurance can be used to cover funeral and burial costs, medical needs, or any other expenses. The average cost of a funeral is $8,300, but final expenses can quickly add up to thousands of dollars. Having a final expense insurance plan can ease the financial burden on loved ones, allowing them to focus on healing.

When choosing a term life insurance policy, it is important to consider the length of coverage needed and the desired death benefit amount. Term life insurance policies typically range from 10 to 30 years, with 20 years being the most common. The death benefit can be used to cover a variety of expenses, including mortgage, funeral expenses, and college tuition. Term life insurance is generally the most budget-friendly option, with monthly premiums as low as $8.

Convert to a permanent policy

If you have a term life insurance policy and want to extend your coverage, you can convert it to a permanent policy. This is a useful option if you want to keep your coverage but don't want to shop for a new policy, perhaps due to a change in your health.

Term life insurance is a contract between a policyholder and an insurance company that provides coverage for a set period, such as 10, 20, or 30 years. If the insured person passes away within this period, the insurer pays a death benefit to the beneficiaries named in the policy. On the other hand, permanent life insurance provides coverage for the insured's entire life, as long as premiums are paid.

When converting term life insurance to a permanent policy, you can choose between whole life insurance and universal life insurance. Whole life insurance guarantees a death benefit as long as premiums are paid and has a minimum guaranteed rate of return on the cash value. Universal life insurance offers lifelong coverage and often builds cash value, which grows tax-free. It also allows for adjustments to premium payments and the death benefit within certain limits.

When deciding whether to convert your term life insurance to a permanent policy, consider your long-term coverage needs and financial situation. Permanent policies offer lifelong coverage but come with higher premiums. They are a good option if you want coverage for as long as you live, are attracted to the cash value component, or have lifelong dependents.

Before making any decisions, be sure to review the specifics of your term life insurance policy, including any conversion options and deadlines. Additionally, consult with a financial professional or insurance agent to understand your options and choose the best course of action for your needs.

Customise with riders

Riders are add-ons that offer you additional coverage on top of your base policy. They are sometimes called "laddering". Adding riders to your term policy gives you more coverage upfront for a shorter period while still maintaining an affordable base term policy.

You can stack one or more term riders on top of a base term policy for 10, 15, or 20 years. Stacking term coverage is considered one of the most cost-effective ways to buy term life insurance.

For example, say you purchase $1 million of 40-year term coverage. After 20 years, you pay off your mortgage and now you may be paying for more coverage than you need. Alternatively, you could purchase a 40-year term policy worth $250,000 as a base policy and add a 20-year term rider at a $750,000 value to get to the $1 million total coverage. Once your rider expires and your financial responsibilities decrease, your original $250,000 term policy will stay in place, without the extra protection or additional cost.

One of the popular riders is the Children's Life Insurance Rider, which covers the lives of your children until they're 25 years old. This rider provides a death benefit if something were to happen to your child while your coverage is active.

Another example of a rider is the Accelerated Death Benefit Rider, which is issued with term policies that are originally effective from 2011 onwards, subject to availability. This provision allows the policyholder to request a portion of their death benefit in advance if they are diagnosed with a qualified terminal illness. Policyholders can use this benefit to cover medical expenses, funeral planning, or even a last wish or "bucket list" activity to help the family find closure in their time of need.

Frequently asked questions