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What Exactly Is Term life insurance and How Does it Work?

   Nitish      February 5th, 2022

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Also called pure life insurance, term life insurance is a kind of life insurance that promises the payment of a defined death benefit if the policyholder dies during the specified policy term. Once the policy term is over, the policyholder can either convert it to permanent life coverage, renew it for the second term, or terminate it altogether.

Types of Term Life Insurance

Term life insurance plans in San Antonio, TX are of different types. Your best option will rely on your specific situation and requirements.

• Level-Premium or Level Term Policies: These policies offer coverage for a specific period of time, which can range from 10 years to 30 years. Both premium and death benefit are fixed. Since actuaries are accountable for the increasing expenses of insurance during the life of the effectiveness of the policy, the policy premium is higher than term life insurance policies that are renewed annually. 

• Yearly Renewable Term (YRT) Policies: These polices don’t have any specific term but you can renew every year without the need for giving proof of insurability. The premiums change every year – and as the policyholder person ages, his/her premiums increase. While there is no predefined policy term, premiums can become overly expensive with age, which can make this type of term life insurance plans in San Antonio not so attractive option for many people.

• Decreasing Term Policies: This type of term plan comes with a death benefit, which declines every year, as per a predefined schedule. The policyholder pays a fixed, level premium during the term of their policy. These policies are usually used in conjunction with a mortgage to match the policy coverage with the decreasing principal amount of the home loan.

Once you have selected the policy that’s right for you, make sure to research the insurance companies you are considering so that you get the best term life insurance plan in San Antonio, TX available. 

How Does Term Life Insurance Work?

When you purchase a term life insurance plan, your insurer calculates your premiums on the basis of the value of your policy (the amount to be paid) and your gender, age, and health. In several cases, a health exam may be needed. If required, your insurance company may additionally ask you for your current medications, driving record, occupation, smoking status, family history, and hobbies.

In case you die during the term of your policy, your company will pay the face value of your policy to your beneficiaries. This cash benefit (non-taxable in most cases) may be used by them to settle your funeral and medical care costs, mortgage debt, or consumer debt, among several other things. But, if your policy gets expired prior to your death, there will be no payout. You can renew your term policy at its expiration, but the premiums will be recalculated on the basis of your age at the time of renewal.

Except for the guaranteed death benefit, term life plans in San Antonio have no value. Also, unlike whole life insurance policies, there is no savings component in term insurance plans.

Term life is perhaps the cheapest life insurance available as it offers just death benefits, and that too for a limited time. For instance, a healthy 30-year-old non-smoking individual can get a 20-year level-premium policy with a face value of $250,000 at a monthly premium of just $20 to $30.

Depending on the insurance company, buying an equivalent whole life plan may have substantially higher monthly premiums, around $200 to $300, or even more. Since most term life plans expire before paying a death benefit, the overall risk to the insurance company is much lower, compared to a permanent life plan. This reduced risk lets insurance companies pass cost-specific savings to the policyholders in the form of lower premiums.

Note that the financials of the insurance carrier, interest rates, and state regulations can also affect your term life insurance premiums. Usually, insurance companies offer excellent rates at “breakpoint” coverage levels of $100,000, $250,000, $500,000, and $1,000,000.

Benefits of Term Life Insurance

Term life insurance is an attractive option for young individuals with kids. Parents may get a sizable coverage at a reasonably low cost. If a parent dies during the term of the policy, the substantial death benefit can easily replace lost income.

Term life insurance plans in San Antonio, TX are also great for individuals who require a specific amount of life insurance coverage on a temporary basis. For instance, for a policyholder, by the time their policy ends, their surviving family members may no longer require additional financial support or they may have accumulated ample wealth to insure themselves.

Cost of Term Life Insurance Premiums

Term life insurance plans in San Antonio are perfect for individuals who want to have significant coverage at a lower cost. People who have whole life insurance plans pay higher premiums for less coverage, but they have the peace of mind that they are protected for their entire life.  

While some customers support the affordability factor of term life insurance plans in San Antonio, TX, paying premiums for a predefined period, without any benefit after the expiration of the policy term is an unattractive feature for many. At the time of renewal, term insurance premiums increase as the policyholder age and may become cost-prohibitive with time.

To Conclude

Hopefully, the information shared above will help you decide whether or not term life insurance is a great option for you. It is always best to buy any life insurance plans in San Antonio, TX from a local licensed insurance agent to get expert guidance and the best value for money.