Term life insurance: how to protect your family from financial ruin

Created: 12/25/2022, 10:00 am

The sudden death of a person often presents the bereaved with unexpected financial problems.

This can be avoided with term life insurance.

Nobody likes to think about their own death.

In particular, the idea that loved ones will have to get by without you should the worst happen is arguably terrifying for most people.

But especially families with children should think about it.

Term life insurance: What you should pay attention to

A term life insurance offers a possibility for financial security.

However, before signing a contract prematurely, you should first be clear about a few important details.

Because term life insurance can be taken out in a variety of ways, with some options making more sense for married couples, for example, while others offer benefits to unmarried couples.

The choice of the sum insured, the amount of which influences the contributions, should also be well thought out.

With a term life insurance you can protect the family from ruin.

(Iconic image) © WavebreakmediaMicro/Imago

Term life insurance — that sounds like a pretty big word at first.

And indeed it is about death.

Because term life insurance is there to pay out a fixed sum to the surviving dependents of the deceased in the event of death.

Like death benefit insurance, for example, it is one of the so-called death insurance policies.

In contrast to life insurance, term life insurance cannot be used as a retirement provision, as it is only paid out in the event of actual death.

Basically, you should check your insurance regularly, you can often save money by switching providers.

In order to understand how term life insurance works, you should first know the most important basic terms.

The insured is the person whose potential death is covered by the contract.

The insured person can conclude the contract himself or be insured under another person's contract.

The sum insured is the amount of money that is stipulated in the contract and is paid out in the event of death.

The beneficiaries are the recipients of the sum insured, i.e. those who receive the money in the event of death.

Who should get term life insurance?

For many people, taking out term life insurance is of secondary importance.

Other investments in the future initially seem to make more sense than protection against the unlikely event of premature death.

However, term life insurance is often a good decision.

In particular, people whose relatives are financially dependent on them should consider concluding a contract.

These can be, for example, relationship partners who are the sole breadwinners in the shared household or at least bring in the majority of the income.

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Term life insurance also offers parents the opportunity to ensure that their children are cared for even after their death.

In certain life circumstances, a contract should definitely be considered, for example if a property was bought on credit.

Unmarried couples are also particularly good candidates for term life insurance, since there is usually less legal protection than for married couples.

In general, it can be said that anyone who does not want their relatives to suddenly get into financial difficulties after their own death should find out about the options for appropriate insurance.

Important facts about term life insurance

Anyone who has decided to take out term life insurance is often confronted with an excess of information.

However, before you delve into the details of the different forms of insurance, you should familiarize yourself with some basic facts.

This includes that term life insurance policies are individually adjusted.

The term and sum insured can therefore be determined according to the circumstances of life.

For couples in particular, an important question arises right at the beginning: what happens when we separate?

Fortunately, this is not a problem in most cases, because the beneficiary can still be changed afterwards.

Parents who have named their children as beneficiaries need to know that the sum insured is only paid out to adults.

If the offspring is still a minor, a guardian must first manage the money.

A tragic fallacy also exists for people contemplating suicide.

This case is often not covered or only applies several years after the conclusion of the contract.

Under no circumstances should false information be given when taking out term life insurance!

Providers who find out that the insured person lied in the contract often refuse to pay out the insured sum in the event of actual death.

Term life insurance should only be taken out with providers who are part of Protektor Lebensversicherungs-AG.

Only then is it ensured

What are the options for term life insurance?

Life insurance can be taken out in many different ways.

Individual contracts are available for married couples, in which the respective partners award each other the sum insured.

In the event of separation, everyone keeps their contract and, if desired, names a new person, for example a common child, as the beneficiary.

For unmarried people, the conclusion of cross-contracts makes more sense.

In this case, both partners designate the other as the insured and themselves as the beneficiary.

If death occurs, you receive the sum insured from your own contract.

The advantage of this is that, in contrast to individual contracts, no inheritance tax is due because you were the contract owner yourself.

The inheritance allowance for unmarried couples is only 20,000 euros, while married couples are entitled to 500,000 euros.

Even cross-contracts have a loophole if a separation should occur: Both parties can then simply take over the contract of the other.

However, couples do not always have to take out two term life insurance policies at the same time.

A joint contract in which the surviving person receives the insured sum in the event of death is also possible.

The disadvantage of this contract, also known as "connected lives", is, however,

Term life insurance: sum insured, term, additional benefits

Term life insurance is intended to provide long-term financial security for loved ones.

But how should one know what the world of the future will look like when the contract is signed?

So that potential changes on the global financial market can also be taken into account, there are different options when choosing the sum insured.

A constant sum insured always remains the same, regardless of inflation or other social developments.

An increasing sum insured grows over time and thus ensures that sufficient money is available in the event of death, even decades after the conclusion of the contract.

In this case, it should be borne in mind that the contributions are also constantly increasing.

A falling sum insured shrinks during the term of the contract.

It causes the lowest contributions and is particularly suitable when debts are paid off at the bank.

The term of a term life insurance can be individually adjusted.

The general rule is: the longer, the more expensive.

In any case, the contract should be concluded at least for the period in which the beneficiaries definitely need the financial support.

Numerous providers today also offer attractive additional benefits such as extension options and early benefits in the event of illness or the need for care.

However, whether these are really necessary in the individual case should be weighed up carefully in advance.

Term life insurance: Smokers have to pay more

The most important factor when taking out term life insurance is undoubtedly the amount of the sum insured.

The smaller this is, the cheaper the contributions will be.

But the amount must be at least large enough to provide financial security in the event of death.

Fortunately, there is a rule of thumb that helps when choosing the sum insured.

Individuals should add approximately three times their gross annual salary to their outstanding loan amount.

Those who have children take four or five times the gross annual salary as a basis.

Life insurance premiums vary by provider.

On average, you can expect annual premiums of between 100 and 300 euros for an insured sum of 200,000 euros.

However, personal factors also play a role in determining the amount of the contribution.