What is Term Insurance and When Should you Consider it?
We recently worked with a young couple who is expecting their first child. While reviewing their financial plan with them, we covered the various types of insurance that they might consider. They were not familiar with Term Insurance: a type of life insurance policy that provides coverage for a defined period of time or term; usually twenty or thirty years. If the person who is insured dies during the term, a death benefit would be paid to the beneficiary.
Many clients we work with already have some form of life insurance, usually group term life insurance, through an employer. Term insurance, however, will give you coverage that is portable if you leave your job and is a relatively inexpensive way to ensure that you (or your partner/spouse) will have funds in the event that something unfortunate happens. There are various types of term insurance policies available (convertible term, increasing term, etc.). You would need to look at the pros and cons of the various policies and decide what best fits your life.
Term life policies don’t build cash value. You receive a fixed amount that is determined at the beginning of the policy term. The premium is generally a fixed amount paid monthly or annually for the term of the policy. The premium is determined based on a variety of factors (age of insured, the payout, health history, etc.). A typical type of term insurance is “level term” policy. Twenty years is generally considered, as that time period typically covers a child until they are able to care for themselves.
There is no perfect methodology to determine how much life insurance to buy, but figuring out your after-tax income replacement can be a starting point; some people purchase more and some less. Generally, you could get a few quotes just to compare prices. Overall, term life insurance policies do provide peace of mind, especially for young families who may need to take care of young children.
If you are looking for some more financial guidance, whether it’s for a one time financial plan or continuing advice on your investments, we invite you to meet with a First & Main Financial planner for a free consultation. We work with a variety of clients who are looking for a relationship with a knowledgeable and trustworthy advisor. We would be more than happy to sit down with you, assess your current financial situation, and review with you our services to help you navigate your own financial future.