If you purchase a 20-year $500,000 term life insurance on yourself and want your spouse to get the insurance money if you die, you would be the policyowner and the insured, and your spouse would be the beneficiary and would receive the $500,0000 death benefit if you died sometime within those 20 years. Your spouse can use this money however they wish.
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Common uses for life insurance money include covering the cost of a funeral, medical bills, mortgage payments, and children’s college tuition.
John Smith is 35 years old and purchases a 20-year $500,000 term policy. He and his wife Jane have three children. He names Jane as primary beneficiary and his brother Jake as contingent beneficiary. In John’s Last Will and Testament he names Jake as his children’s legal guardian should anything happen to him and Jane. Jane does the same in her will.
Scenario 1: John dies in a skiing accident 10 years after buying the policy. After sending in a copy of his death certificate and claim form, the insurance company sends Jane a check for $500,000.
Scenario 2: John and Jane both die simultaneously in a head-on collision 1 year after buying the policy. After sending in their death certificates and claim form, Jake receives a check for $500,000.
|Term Life Insurance Key Terms|
|Policyowner||This person has control over the policy and pays for it. This can be the same person as the insured.|
|Insured||This is the person whose life is covered by the policy. This can be the same person as the policyowner.|
|Primary Beneficiary||This is the person or entity that will receive money when the insured individual dies. There can be more than one primary beneficiary.|
|Contingent Beneficiary||This is the person or entity that will receive money when the insured individual dies if the primary beneficiary(ies) have predeceased the insured. There can be more than one contingent beneficiary.|
|Death Benefit||This is the amount of term life insurance coverage that is purchased and is what the beneficiaries receive when the insured dies.|
|Term||This is the period of time in which the insured is covered. Common term lengths are 10, 15, 20, and 30 years.|
|Premium||This is the amount the policyowner pays to keep the policy active. Premiums can be paid monthly, quarterly, semi-annually, or annually.|
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What Do My Premiums Pay For?
Term life insurance is often referred to as income replacement insurance. Essentially, if you die within the term, the death benefit replaces the money you would have provided to your family. Let’s say your 30-year $500,000 policy costs you $35 per month. If you died in year 25 of the policy, you would have paid a total of $10,500 in premiums, but your family receives $500,000.
At first glance, people are often put off by the fact that their families may never see any of that money and they would be wasting their hard earned dollars. Half of this is true. If you do not die within the term, your family does not receive the death benefit… but guess what? This means you’re still alive. Is this peace of mind and protection from the “what ifs” a waste?
You pay for auto and homeowner’s insurance, but do you really hope to receive money from those insurance companies? Most likely not because that means something disastrous happened like you either got into a car accident or your house was flooded. Same with term life insurance. It’s something you buy to protect your loved ones, but you honestly really hope it doesn’t get used.
If you go to the website GoFundMe.com and search the category “Memorials” there are pages and pages of families asking for help in paying for funerals and bills of deceased loved ones. Many people think “it won’t happen to me” but sadly it does and struggling loved ones are left behind to pick up the financial pieces.
When Should I Buy Term Life Insurance?
There’s no time like the present to purchase life insurance. You can’t buy life insurance after you need it.
The application process for buying life insurance takes your age and health into consideration. If you find yourself at a doctor check-up and the dreaded C-word is spoken, life insurance suddenly seems extremely important and oftentimes it’s too late to be approved.
Your health is one of the main factors in determining application approval and premium costs. This application determination process is called life insurance underwriting.
Thankfully Quotacy works with multiple life insurance companies and all of these companies underwrite a bit differently. While one company may find your specific health condition too risky to insure, another company may think differently. Quotacy works with and understands multiple life insurance companies and will “shop” your case when needed.
Ready to apply for life insurance? Start by getting a free term life insurance quote—no contact information required.
» Calculate: Life insurance needs calculator
About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.