What is term life insurance, and why would you choose this over other types of insurance? Term life insurance allows you to buy insurance for a specific time, and choose between the different types of insurance best suited for your needs.
For example: Let’s assume you need life insurance for a specific amount of time. With term life insurance, you can match the length of the policy to the length of the time needed. If you have young children, and want to secure funds for their college education, you can buy a 20-year term life insurance. So too, if you have a large debt to repay, you can use this policy for that specific need.
Another case scenario for buying term life insurance would be if you need a large amount of life insurance, but have a limited budget. Keep in mind, this type of insurance only pays if you die during the term of the policy. Therefore, the rate is lower than a permanent form of life insurance. In addition, you cannot build any cash savings with a term life insurance policy.
As your needs and circumstances change, you may also want to look into convertible term policies. For a higher premium, you can convert your term life insurance into permanent insurance without a medical examination. It should also be mentioned that premiums are at their lowest when you are young, and increase upon renewal as you age. While some term insurance policies can be renewed when the policy ends, the premium will generally increase.
What are the reasons you would convert to a permanent insurance policy? Perhaps you need life insurance for as long as you live. This type of policy pays a death benefit whether you will die tomorrow or live to be 110. Perhaps you wish to accumulate savings which can be increased utilizing a tax-deferred method. You could then have a source to borrow funds to meet any need that arises.
Term life insurance comes in two basic forms; level and decreasing terms. Almost everyone buys level term insurance. The terms level and decreasing refer to the death benefit amount during the term of the policy. A level term insurance policy pays the same benefit amount if death occurs at any point during the term.
Common types of level term life insurance are: yearly or annually renewable term: 5 year renewable term; 10 year term; 15 year term; 20 year term; 25 year term; 30 year term or term to a specified age, which is usually 65 years old. The premium for the policy is based on the insured person’s age and health at the policy’s start, and the premium remains the same for the length of the term. Therefore, premiums for a 5 year renewable term can be level for 5 years, then to a new rate reflecting the new age of the insured, and so on every five years. A life insurance quote can be determined by the level of term life insurance acquired.
This post was contributed by Damian Youell who is the lead financial adviser at NeedingAdvice.co.uk. He specialises in offering advice on Business Protection Insurance offering products such as Relevant Life Policies Insurance and Key Person Cover. Other areas of financial advice that he can assist with include Enhanced Annuities, Mortgages and Investments.
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