Term insurance policies are one of the most popular life insurance options on the market. These policies, which pay out to beneficiaries if the policyholder dies during the term of the policy, are typically purchased in terms of 5, 10, 15 or 20 years. However, custom plans are available to those that require specific term dates.
A term plan is a great way to offer your family some peace of mind and financial security in the event of your untimely death. A death in the family leads to substantial turmoil and upheaval. Don’t let finances be one more thing to think about as your family begins the grieving process.
Here are the answers to the five most commonly asked questions about term insurance. They may offer some insight into how the product can meet your insurance needs and provide additional financial stability in your family’s future.
How much do term life insurance policies cover?
The coverage varies depending on the policy, and it will be up to you, the policyholder, to determine how much coverage your family will need in the event of your death.
If your children are likely to need to pay college tuition during the course of the policy term, you will likely want to purchase a policy with more coverage than someone who only needs enough coverage to pay for funeral costs and end of life expenses.
· You family’s living expenses
· Anticipated future costs (e.g. college, medical bills, new cars, weddings etc.)
· The size of your mortgage
Do I need to undergo a medical exam?
Most term life products will require the policyholder to undergo a medical examination. However, there are some products on the market which do not require an examination. The need for a medical will depend on the applicant’s age and the term duration.
Is the figure paid out in a lump sum?
If the policyholder dies during the policy term, the beneficiaries will be able to choose how the policy is paid out. The beneficiaries can choose to receive one lump sum payment, or they will be able to set up a yearly payout figure.
If the beneficiaries are minors (under the age of 18), the policyholder can set a minimum age at which the benefit sum will be made available.
Are policy benefits taxed?
Your term insurance policy benefits, when paid out to the beneficiary named in the policy, are not taxed.
However, you should be aware that if the benefit is considered part of your estate, it will be taxed. Additionally, if the designated beneficiary has been changed, the benefit may be taxable. Also, if a third party bought the policy for someone else (e.g. a parent bought a policy for a child), the benefit may be considered a gift from the third party and may be taxed accordingly.
How soon after my application will the new policy be in effect?
Following the medical exam and the application, approvals are typically given in 4-6 weeks. If additional information like medical records is required, it may take slightly longer to receive approval.