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Insurance termInsurance term provides a specific amount of cash if one dies while the policy is in force. If you live beyond the end of the term, you will get nothing. With insurance term, you pay for only life insurance coverage. The policy does not develop reserves.Insurance term is the cheapest form of coverage over a limited number of years. As a candid life insurance man once said, It provides the most bang for the buck, no question over the short term.
There are many types of insurance term: Policies that have an automatic right to renew for an additional term, but these options do not change the basic fact that insurance term pays off if you die during the policy time and pays nothing if you live beyond that period. Term life insurance is particularly suitable for younger people with families, who want substantial insurance coverage at low cost.
Since the risk of dying in your twentys, thirties, or forties years is quite low, the cost of insurance term during these years is as reasonable as life insurance prices get. Also, if you need insurance for only a short time, say to qualify for a business loan, term is your best bet. However, the older you are, the more expensive insurance term becomes when you compare how much you have to pay in premiums to the payoff value of the policy. This, or course, is understandable, as the older you are, the greater the chance you will die during the policy term.
Some people refer to insurance term as renting coverage because the only way your insurance policy pays out is if you die during this period. The payouts are offered in a lump sum payment or a steady stream of payments to your beneficiaries.
Make sure your policy offers a guaranteed renew ability feature, so you do not have to take a medical test to continue coverage for another term, especially as you get older. In addition, if you have an annual renewable term policy, you can convert it to a whole life policy without a medical exam. This is called guaranteed conversion that allows you to convert from rising premium term insurance to a fixed premium whole life policy. If you think you may do this sometime down the road, make sure your insurance term policy is convertible into a whole life policy without another medical examination. There is an additional cost for this provision, but as you get older, you will end up saving more in premiums by doing so and avoiding the medical examination.
The mentioned above, term policies offered by different companies have all sorts of differences, some significant. For example, some policies are automatically renewable at the end of the term without a medical examination, often for higher premiums, and some are not. Some have premiums set for a period of years, but others guarantee a premium rate for only the first year. After that the rate can go up. Some can also be converted from a term to whole life or universal policy during the term, again without needing to re-qualify. However, as we have said with insurance term you never lock in the right to maintain the policy no matter how old you become. If you want to ensure that insurance will continue in force entire life term is not for you.
Here are some things to keep in mind when looking at a insurance term policy.
Make sure the illustrations your insurance agent gives you show the rates you will pay and the maximum guarantees rate they can require you to pay. There is a state law that regulates the maximum guarantees. Nevertheless, remember, policy illustrations are not guarantees even if they are in black and white. Term premiums are subject to change based on mortality and the insurance companys finances.
Compare a level premium term policy to an annual renewable term. You know that premiums on ordinary policies increase in cost every year. Some companies offer a form of level premium term, in which they project that the annual premium will remain the same for five, ten, or twenty years. At the end of the specified time, your policy may kick back into a policy that has increasing premiums every year, or remain level for five years and then kick back into increasing premiums. Ask your agent if the premiums are projected or guaranteed. Insurance companies are not obligated to meet projected premiums even if they are in the illustrations they give you.
Choose a guaranteed annual renewable term to avoid medical exams. This ensures that you do not have to have a new medical exam every year to renew your term policy. Avoid those policies, which are known as reentry term.
There is no obligation to purchase insurance term ; but make sure they handle the transaction in your state if you do buy a policy.
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