Term Life Insurance Explained

Hey everyone this is Jeremy from Shine Insurance, and today we’re gonna go over the most simple kind of life insurance. And the one that most financial advisors will tell you you should choose, and that is term life insurance. We’re gonna talk about the death benefit, the reason you have a term life insurance, what the word term means, what the face value of your term life policy is and finally the beneficiary. Let’s start with death benefit. The entire purpose of a term life policy is the death benefit. If you pass away while the policy is in place, the insurance company will pay an amount of money to the person or entity that you designate as your beneficiary.

So, some money is going to be put into the hands of the people you left behind or the entities that you left behind when you passed away. The word term is a very specific part of the term life policy. It is simply the period of time that the price of the policy is locked in. So the price cannot change during the term that you have chosen, so let’s take an example here. A 20 year, which is super common, a 20 year term policy priced at $I just made that number up, per month, would stay $for 20 years. So the insurance company could not change the price on you no matter what happens with your health or anything like that for the 20 years that the policy is in place. Something interesting that most people don’t know, is that after that 20 years, the policy does not just end if you’re still alive it will continue, but the price will increase dramatically most of the time you don’t wanna continue with the policy after the term ends, because the price is prohibitive.

Let’s talk about the face value, this is the other part of your term life policy. The face value is the amount of money that will be paid out as the death benefit to your beneficiary. So it’s the amount of money you choose that will be paid by the life insurance company to your beneficiary. So an example, a common example is a $250,000 face value would pay $250,000 as the death benefit if you were to pass away while the policy is in place. So you have the term, the period of time that the price won’t change, and the face value, which is how much will actually be paid out in the case of your passing. The third element here is your beneficiary,  and this is simply the person, people, business, or non-profit organization that receives the death benefit, so this is who you choose to get the money if you were to pass away.

The most common example is a spouse, so a husband or a wife that you are married to and you have a family together or whatever, and you wanna know that if you were to pass away they could take care of, you know, the family, maybe pay off the mortgage, cover any money that you were bringing in for a period of time to get resettled because of your loss. So that is the most common beneficiary, but there are certainly other examples. Some of them include an estate or trust, so if you set up a will or a trust, which I suggest everyone does, then you may just direct your life insurance policy to that estate and then the directive of the estate would be, would figure out where that money went. You could send it specifically to your children, sometimes people do this, but I definitely recommend that you have a trust that makes it clear, you know, if you had a $250,000 face value, and you had an eight year old and you were to pass away, suddenly that eight year old is responsible for $250,000 without any restrictions, that can create a lot of problems, and so most financial advisors, including myself, would say, you know, create a trust before you create your child as the beneficiary.

You could create a parent, often times kids that are in college that have student loans would make a parent the beneficiary of a small life insurance policy, so if they were to pass away that student loan debt wouldn’t become a burden on their parents. And you could also choose your favorite charity, certainly there are people who purchase a life insurance policy, and if they were to pass away, those dollars would go directly to the charity of their choice, so the beneficiary, the person or entity that receives the face value or the death benefit of your life insurance policy.

Finally a rookie mistake, that folks make, and this is so important, is not telling family members how to find your policy. When you purchase a term life policy, you need to make sure and tell your family members where that policy is, how to contact your insurance agent in the case that you pass away so that they can access the dollars available to them because you purchased a term life policy. Hundreds of thousands of dollars in life insurance are left unclaimed because the people who were beneficiaries did not have access to information to get to the policy, so purchasing a term life policy is super important, but as important as purchasing the policy is making sure that other people know how to access that policy, if you pass away.

If people don’t know how to access that policy, then it’s essentially worthless, because there’s nothing that can be done after your passing. So that’s it, what we learned here, we learned death benefit, the whole purpose that you have a life insurance policy is to pay out an amount of money to your beneficiary. Term is an amount of time, a period of time that the price of your policy cannot change, no matter what happens with your health or anything like that, the face value is the amount of money that the policy will pay out as the death benefit if you were to pass away, and finally your beneficiary is who gets the money if you pass away. So that’s it, I hope you enjoyed this life insurance, term life insurance video, there’s other Shine videos if you’d like to check them out, they include our New Home Buyers Guide, if you’re thinking about buying a new home, this video really isn’t about insurance, it goes through the process from deciding that you wanna buy a house to the closing and your mortgage payment, really lines it out really really well, you should definitely check that video out, personal umbrellas, if you are interested in liability coverage, additional liability coverage above and beyond, usually your home and auto policies, Personal Umbrella video will help you out there, and if you just wanna laugh, Riding Lawnmower Fails is right there on our Youtube channel, you can look at some folks making some very poor riding lawnmower decisions and laugh with us. Life Insurance.