Life insurance in some form or another has been around since the dawn of mankind. It’s no surprise why. Humans are inherently risk-averse creatures. Our survival instincts and our ability to think ahead push us to take action if we can to prevent any high degree of uncertainty or devastation. We would undoubtedly never assume any risk if it meant total certainty in a favorable outcome. However, we all know life just doesn’t work that way. Simply the act of living is a risky venture as we never know when a giant box of proverbial lemons will land on our doorstep. Thankfully, that’s also why life insurance exists, so you can at least turn around and ask life for a little salt and tequila with those lemons! Read on to learn the benefit of term life insurance.
Now, let’s look at how life insurance, particularly term life insurance, plays out for Millennials and what the benefits are of owning a term life policy. We’ll start with the basics:
What is a term life insurance policy?
It is a type of life insurance with a limited coverage period. Once the ‘term’ is up, the policy owner must decide whether to renew the policy or let coverage end.
What are some other characteristics of a term life policy?
- Low-cost (low annual premium)
- No cash value – unlike whole life policies that build a cash value you can tap into, term policies do not.
- Usually, renewable once policy term ends.
- They are sometimes convertible to permanent life insurance, depending on the particular product or carrier.
What type of coverage is provided by a term life policy?
The primary benefit of term life insurance is a pure death benefit, however many policies allow for the purchase of ‘riders’ (coverage add-ons) for an additional cost. Common riders for term life policies are:
- Term Conversion Rider:
- Features: lets you convert your term policy into a permanent policy without having to undergo a medical exam.
- Benefits: may be beneficial for a younger couple who may decide to have children and want to convert to life-long coverage.
- Disability Income Rider
- Features: allows you to collect regular income from the policy if you become totally disabled and can’t work.
- Benefits: good to have if you work in a dangerous profession with higher exposure to potential injury.
- Long-Term Care Rider
- Features: pays benefits if you ever need in-home care or nursing home care.
- Benefits: can protect you from wiping out other assets in the event of needing in-home/assisted living care or end up in a nursing home.
- Critical Illness Rider
- Features: insurance company pays you a lump sum if you’re diagnosed with one of the critical illnesses specified in the policy such as cancer, heart attack, stroke, kidney failure, and others.
- Benefits: good to have if critical illnesses are common in your family and you are concerned about the financial impact of a critical illness happening to you.
- Accelerated Death Benefit Rider
- Features: policy pays a portion of the death benefit to you if you become terminally ill with a short life expectancy.
- Benefits: this is generally standard practice now in term life policies and is usually automatically included for free or offered at a very low cost. The amount of the death benefit payable in this case is usually capped at $250k to $500k.
- Child Rider
- Features: provides coverage should the death of a child occur.
- Benefits: can help cover many of the costs associated with time off work and funeral expenses in the event of the death of a child. Also, once the child reaches the age of 25, the rider can typically be converted to an individual policy without an exam.
- Spousal Rider
- Features: allows you to add-on life insurance coverage for your spouse versus owning two separate policies.
- Benefits: don’t need to purchase a separate policy.
- Guaranteed Insurability Rider/Additional Purchase Option
- Features: guarantees your policy’s renewability at the end of its term without needing to provide additional proof of insurability. Also, allows you to purchase additional coverage in the future without evidence of insurability.
- Benefits: you can still renew your policy even if you end up with a condition that may otherwise disqualify you from renewing.
- Waiver of Premium Rider
- Features: allows you to maintain coverage without paying premiums on your policy should you become totally disabled and can’t work. Most insurance providers limit the policy to age 65. In other words, if you are older than 65 and become disabled for longer than six months, your premiums will be waived plus, depending on the policy, the premiums paid during those previous six months will be reimbursed.
- Benefits: can save you money if you become disabled for a long period of time.
- Accidental Death Benefit Rider/Double Indemnity Rider
- Features: increases the death benefit if you die as the result of an accident. Sometimes also includes an additional payment for dismemberment. This may not be available however if you work in a profession or have hobbies that increase your risk of this happening.
- Benefits: can ensure your family and financial matters are taken care of if you die prematurely or are dismembered and can no longer work.
- Return of Premium Rider
- Features: allows you to get all of your money back if you live past the term on your policy.
- Benefits: get your money back if you think there’s a good chance of outliving your term.
When would a term life insurance policy make sense for a Millennial?
A term life insurance policy may be advisable for you if you fit in any or all of the following scenarios:
- You own a home and have a sizable mortgage on it.
- You are married and make the majority of the household income.
- You have children or dependents.
- You have sizable debt that would be passed along to family members if you were to die.
Given you’re young and healthy, getting approved for a term life insurance policy is fairly straightforward and low-cost.
What’s the right term length for me?
Terms will typically range from 5 years to as high as 30 years for some companies. You should consider a few things when determining the right term length for you, but it’s important to note beforehand that a term policy can be canceled at any time without costs or charges, so it’s much safer to have a policy which will last for a longer period of time than you need. You can always cancel the policy at the appropriate time versus having your coverage end while still needing protection. With that said, you should answer the following questions as well:
- How long will your mortgage last? Many people will buy life insurance at the same time they buy a house so the mortgage can be paid off if something were to happen the breadwinner of the family.
- How long until your estimated retirement? Matching your coverage time frame until your estimated retirement date can be a smart move. Typically retirement means someone has earned and saved all the money that they will need for the rest of their life. Hypothetically you’d have saved enough money for your family survive through your retirement and beyond. If your policy ends when your retirement begins, ideally your savings will provide enough money for you and your family to maintain their lifestyle into retirement.
- How long until your children are off to college or out on their own? It’s common to purchase insurance to secure a child’s college education or make sure they are provided for until they can provide for themselves if something happens to you.
- What other factors in your life affect your coverage length? A lot of Millennials have student loan debt while still owning a house and having kids. You might be paying your private student loans for the next 10 years, so it’d be advisable to have coverage in the amount and length of that debt to pay it off if something happens. Other factors might be wanting to leave your kids an inheritance or providing for a particular family member.
If you have further questions surrounding term insurance or insurance in general, feel free to reach out and schedule a free consultation with us. We’d be happy to help you sort through your current financial life and determine if insurance would be advisable for you. We do not sell insurance ourselves, but can certainly point you in the right direction.