Term Life Insurance
This type of insurance is for a specified period of time. The most common types are
So, what does that mean? If you are going to get term 10 years, you are only going to be insured for 10 years. Meaning, if you are 40 years old now, your term will cancel at 50 years old, or 10 years from policy approved date. When you do this you are going to have renew your policy at 50 years old, or at your 10 year anniversary. When you renew you will have to pay the cost for that, your current attained age of renewal. So for this example you will pay the premium for a 50 year old, and not at your first policy year of when you were 40. If you do have a 15 year term, that would be the age insurance was attained plus 15 years.
Examples: Let say a person is 40 and they are getting Term here are the coverage time lines:
10 years: 40 to 50 years old- renew at age 50 for the cost of a 50 year old
15 years: 40 to 55 years old- renew at age 55 for the cost of a 55 year old
20 years: 40 to 60 years old- renew at age 60 for the cost of a 60 year old
30 years: 40 to 70 years old- renew at age 70 for the cost of a 70 year old–this is usually harder to renew at this age.
Term Life Insurance is is generally less expensive than permanent life insurance, in the beginning. Every time you renew a term life Insurance the policy premium will go up. So in the long run it will cost you more to keep this type of insurance. It is probably the most expensive way to have life insurance in the long run. But, if you just need some protection until you can afford permanent then this would be the best option to at least be covered, in my opinion of course. As you see in the chart below:
Term Life Insurance will cost you more as time goes by. When it is time to renew you have to option to renew coverage with no further proof of insurability, but you will be paying a higher premium.
Many Term products, not all, offer you a chance to convert your term to permanent life insurance. This is called the Conversion Provision. This will allow you to do the change without further proof of insurability. This is a good option to have because as your life changes, so will your insurance needs.
An advantage that term does have is that it is a tax-free death benefit to the beneficiaries. So if something was to happen to you during your covered time frame, your beneficiaries will get the face amount/or death benefit tax free.
A disadvantage that term does have is that you do not get any cash value from the policy. Cash Value accumulates as you pay your premiums. So the money that goes into the policy not only pays for the policy, but it also helps you earn rate of return income. A term Life insurance does not have this. All the money you put into the policy is gone. You either need to use it or lose it…. DON’T do something crazy now!!….. In other words, if nothing happens to you during your time frame and you do not renew the policy, you will no longer be covered. This is why Term is so inexpensive in the beginning years because most people do live out their term.
Term life insurance is quite simple, if you are on a tight budget and just need some type of insurance, this is the best one for you. Just always keep in mind that most people outlive their term and will have to renew. The longer you wait to get permanent insurance the higher the cost because cost does go off of age and health.
So, here is how Term life Insurance works..
Whenever you get any type of insurance you have to pay a premium. This is the amount that you will be paying for your Term life insurance. This will usually be the same throughout your term of coverage. This is based on:
c. Amount of death benefit or coverage
d. Length of time or in other words your “Term”
2. Company Cost & Cost of Pure Insurance:
When premiums are paid, the company will first deduct all of its expenses. Some of the expenses are:
a. Premium taxes
b. Cost of pure insurance or death benefit
c. Sometimes admin fees
d. Sometimes processing fees
3. Pure Insurance:
As stated before, you do not build cash value. The amount paid is for pure insurance coverage of your death benefit. Your death benefit will stay the same until the term of the policy or if you change the policy in between its term.
4. Death Benefit:
If you happen to die during the term of your policy it is the insurance obligation to honor its promise to pay the death benefit to the beneficiary, tax free.
5. Policy Termination:
You are blessed to out live your term policy. If you do happen to outlive your policy, your coverage will end and you nor your beneficiaries will receive anything from the company. You now have the option to renew, with a higher premium due to increase of age or be uncovered(i hope you don’t chose that one).
I hope this helped you all understand the basic of Term Life Insurance. If you are looking for Term I am willing to help you out with that.
Good luck and keep your most valuable asset protected, YOU!