What Does a Term Life Insurance Cover?

It’s really a great question and we’re glad you asked. What exactly does term life insurance cover?

It helps cover everything your loved one needs — or needs — including both short-term (such as funeral costs, burial expenses, and other end-of-life financial obligations) and long-term (such as college tuition or . Are included. paying a mortgage). Think of your insurance policy as a contract with your life insurance company. If you die before that contract ends, your loved ones will receive a death benefit payment based on the coverage you purchased.

Also Read: 5 Auto Insurance Myths & Facts

To determine how much life insurance coverage you’ll need, you can use a handy online needs calculator to see which term insurance policy is right for you. You can also consider the kind of expenses your loved ones will face and the kind of legacy you want to leave behind. With all this in mind, here are seven common expenses that people buy life insurance to help cover:

1. End-of-life expenses

An obvious use for a life insurance policy is to cover end-of-life financial obligations including funeral costs and burial expenses. If you’ve never given much thought to what these final expenses cost, it might surprise you to know that the average funeral can have a $10,000 price tag.

If you’re single, covering those final expenses might fall to your parents, siblings or other family members. If you’re married, your spouse may be left to foot the bill. Grieving is hard enough. No one wants to stick their loved ones with a $10,000 bill at the same time.

2. Day-to-day bills

Think about what it costs to run your household, day in and day out. You may pay rent or have a mortgage. There’s food, utilities, health insurance, car payments, car insurance, clothes, school supplies, extracurricular activity fees for the kids… the list never ends.

Now, consider how your spouse or partner would handle this heavy financial obligation if something were to happen to you. Hopefully, you’ve built an emergency savings cushion that could help with some costs in the short-term, but a family shouldn’t need to deplete their emergency fund to get by.

A life insurance policy, however, could help your beneficiaries have a larger financial cushion for daily expenses. This lets you lift some of the financial burden off their shoulders so they can focus on getting themselves and your kids, if you have them, through the grieving process.

3. The mortgage

For many people, a house is one of their most significant assets and a key to their family’s financial stability for years to come. If you died and your partner faced the payments without your income, a life insurance policy could help protect your partner’s ability to pay the mortgage.

Knowing that life insurance proceeds can be put toward paying the mortgage can offer your partner the freedom to make decisions that are best for your family during a trying time. For example, should they stay in the house? Should they pay off the mortgage entirely? Does it make sense to downsize? Should they move closer to family? The ability to afford the monthly mortgage payment buys an immense amount of flexibility, time and peace of mind for your family.

4. Child care and other dependent expenses

Raising kids isn’t cheap; the federal government estimates that a middle-income family spends $12,980 each year per child. And that doesn’t include the additional cost of eventually putting them through college, which can add thousands more to the total.

Having kids is one of the best reasons to consider being insured. The lump sum payout associated with your term policy can be used to help pay for anything from daycare costs to summer camps to college expenses. That’s important for helping protect your growing family — and all the hopes and dreams they have for the future.

A life insurance policy can also help with paying costs associated with raising a special needs child. For example, they may require nursing care or special equipment, such as a wheelchair or feeding tube.

One more thing: You may think that the chief earner for the family is the only one who needs life insurance coverage. In reality, it’s just as important for stay-at-home parents to have a life insurance policy, considering all that they may do day-to-day to keep the household running.

It’s estimated that the typical stay-at-home parent does tasks that are equal to around $160,000 a year worth of work. If your loved ones need to add daycare expenses into the family budget or hire a housekeeper because the stay-at-home-parent has passed away, a life insurance policy could be used to help cover the cost.

5. Medical expenses or long-term care—while you’re still living

Most life insurance policies offer an accelerated death benefit rider that allows the policy owner to access a portion of your death benefit before you die if you are diagnosed with a terminal illness. That could help you pay medical or other expenses related to long-term care during a time when you can’t work.

Suffice it to say, this can be a huge expense—not to mention a hassle, during a time that’s already stressful—to take on without help. But please note, any funds tapped by the accelerated death benefit rider will reduce the overall death benefit once the policyholder passes away.

Protecting your loved ones with life insurance

The purpose of life insurance is to help protect your loved ones from financial hardship if you were to die. While it may seem like there are many factors to consider when choosing a policy that adequately covers your loved one’s financial needs, it’s actually a lot simpler than you think.