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You Picked Term Life Insurance — Now What?

Insurance, Life Insurance
You Picked Term Life Insurance -- Now What?

You picked term life insurance — congratulations! Because of its simplicity and low costs, term life is a popular type of life insurance among many insurance agents and buyers.

Term life insurance policies pay a benefit if you die during the policy term. The benefit money can serve as income replacement if you die, can help pay off a mortgage or can pay for your children’s educational expenses. Term life insurance policies are relatively inexpensive and usually have fixed monthly or annual premiums. But unlike those who have permanent life insurance policies, your beneficiaries aren’t guaranteed a payout because term policies expire if you are still living when the term ends.

Term life insurance policies are easy to manage and are available from all the best life insurance companies. There’s no cash value to keep track of, and no investment component to monitor. Once you’ve picked one, though, you do still have a few decisions to make.

How long is your term? Life insurance terms typically last five, 10, 15, 20 or 30 years. Your reason for buying life insurance will determine your term. If you want to protect your income until you retire, or ensure that you can pay off your mortgage, a 30-year term might be appropriate. Do you have a co-signer on a small debt (like a car loan)? Maybe a five-year policy is enough.

» COMPARE: NerdWallet’s life insurance comparison tool

What’s your benefit amount? Your reasons for buying life insurance will also help determine the appropriate benefit amount. Your debts, income, fixed expenses and savings goals — including retirement and your children’s educations — should all play a part in your calculations of how much life insurance you need.

Many longer-term life insurance policies offer benefits starting at $100,000. Shorter term policies might top out at $50,000 or less.

Who are your beneficiaries? You don’t want to make mistakes when picking a life insurance beneficiary. For example, failing to designate a secondary beneficiary, or choosing a beneficiary who’s a minor, can bungle your death benefit. Always review your beneficiaries after a major life change such as a birth, marriage, divorce or the death of a spouse.

Do you need any riders? Riders are extra benefits that you can add to a life insurance policy for a little extra money. There are many to choose from. For example, you might consider the accidental death benefit rider, which pays your beneficiaries extra if you die in an accident, or the disability income rider, which pays your premiums if you’re unable to work. A “return of premium” rider, which pays you back your premium if you don’t die during the policy term, can be a plus for term life policyholders.

Buying life insurance can be intimidating, but fortunately term life policies are straightforward. Nonetheless, you may decide later that you’d prefer a whole life policy, or that you’ll need term coverage for longer than you expected. Just in case, look at the conversion and renewal options before you pick a term life insurance plan. These can offer flexibility in the future.

Alice Holbrook is a staff writer covering insurance and investing for NerdWallet. Follow her on Google+.


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