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Term life insurance is a type of life insurance that provides coverage for a specific period, or term, chosen by the policyholder. It’s typically the most straightforward and affordable life insurance option by covering you for a set "term" (life insurance terms are typically 10 to 30 years). If you pass away during the term period, your beneficiaries receive a cash payment, called a death benefit.
Unlike permanent life insurance policies, such as whole life or universal life, term life insurance does not build cash value over time.
Term life insurance is a straightforward and cost-effective solution for individuals seeking affordable protection during specific periods of their lives. It's important for individuals to carefully consider their financial goals and needs when choosing the duration and amount of coverage that best suits their circumstances.
That said, there are a few reasons that many people choose to get a term life policy. First, it’s generally more affordable than permanent life insurance, especially in the early years of coverage. This makes it an attractive option for individuals who want significant coverage at a lower cost, particularly during times of higher financial responsibility.
The other key advantage is that premiums for term life insurance policies are fixed for the duration of the term. This means that the policyholder pays the same premium amount each year, providing predictability for budgeting purposes.
Term life insurance with Ethos might be right for you if:
- Your loved ones would need to replace lost income while raising children or paying a mortgage. Whether you’re the breadwinner or a contributor to the family finances, your loss of income could mean a big lifestyle change for the people you leave behind. A term life policy can help avoid that.
- You have short-term financial responsibilities such as loans, a new business, or credit card debt. The last thing you want to do is leave debt behind for your family to have to deal with. A term life insurance policy can make sure your obligations are taken care of.
- You want the most affordable life insurance coverage. If you’re on a budget but still want life insurance protection, a term policy is typically the most affordable.
- You appreciate the straightforward nature of term life insurance. Same fixed premium for a set term, and you know what the death benefit payout is – there are no surprises or complex things to manage.
If you’re considering life insurance, term policies use premiums to cover you for the determined "term" of the policy, expiring if not claimed within that time frame. Whole life insurance can last your entire life if premiums remain current. Whole life policies also have the potential to accrue cash value, depending on the policy. Still, premiums typically cost between five and 15 times more than a term life insurance policy for the same benefit amount.
A term life policy may provide a good match for someone seeking affordable coverage to replace lost income over a critical period, such as while raising children or paying off a mortgage. Whole life insurance offers options for those with more complex financial situations or someone desiring the security of lifetime coverage.
Ethos term life policies are backed by established life insurance companies like Legal & General America, Ameritas Life Insurance Corp., and TruStage®. By combining Ethos' streamlined application with their coverage, we've shortened the application process to minutes, compared to weeks with traditional applications. With Ethos, you get the dependability of major insurers and the convenience of modern technology.
It's ultimately up to your beneficiaries to decide how to use the cash payout. People often choose to help cover things like:
- Home mortgages or rent
- Lost income
- Loans and debt
- Children’s education
- Living expenses
- Funeral costs
It's typically simple for your beneficiaries to file a claim and receive a cash payout with a term life policy. If you pass away while your coverage is in force, your beneficiary files a claim with your insurance carrier (as identified on your policy documents), and the carrier will issue the death benefit payout. Barring unusual complications, your beneficiary will receive an untaxed, lump-sum payment for the value of the policy's death benefit. For example, if you purchase $1 million in coverage, your beneficiary will receive a tax-free $1 million lump-sum payout.
A claim may not be paid if underwriting finds that parts of the application were answered untruthfully or if the claim is the result of death by suicide within the first two years of the policy being in force.
If you do not pass away during your term, you have options when your term ends:
- You can apply to extend your term to ensure you always have coverage.
- You can apply for a new policy with a fresh term length and coverage amounts
- You can decide to bypass extensions or not purchase a new policy
Term life insurance, commonly lasting from 10 to 30 years, ensures beneficiaries receive a death benefit if the policyholder passes away while coverage is in force. Term life insurance premiums are often more affordable than permanent life insurance policies because permanent life insurance policies are active for the policyowner’s lifetime as long as premiums are paid. Additionally, it's important to note that term life insurance does not accumulate cash value over time.
Term life insurance doesn't offer a cash value component, so policyholders can't cash out the policy. It's designed purely for death benefit coverage during the specified term, helping to provide financial protection for beneficiaries if the insured passes away within that period.
Generally, life insurance death benefits aren't subject to income tax. However, if you cash out a life insurance policy, any gains may be subject to taxation. Understanding the tax implications is crucial. Know more about the taxation of life insurance here.
Upon the maturity of a term life policy, it means the policy term has ended. For term life insurance, there's no payout or cash value at maturity since it's designed to provide coverage during the term. Policyholders may explore renewing the policy or obtaining a new one if needed.
Find the answers on the Ethos FAQ page.
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