Term life insurance is a type of life insurance that guarantees a death benefit to the insured’s beneficiaries if the insured dies within the set time period of the policy, which is usually 10, 15, 20, or 30 years.
You can buy a term life policy with a $100,000, $250,000, $500,000, or $1,000,000 death benefit. If you die within the term of the policy, your beneficiaries receive the death benefit. To keep your policy in effect, you must continue to pay your premiums. These premiums are low monthly amounts based on your age, health, smoking status, hazardous lifestyle, or risky activities at the time of the underwriting.
Term life premiums are based on a person’s age, health, and life expectancy, and depending on the insurance company, once the term of your policy ends, you can choose to renew your policy or can convert it to a permanent (whole) life policy.
When you purchase a term life insurance policy from a health insurance company, the company itself will determine the exact monthly premium based on the policy’s value. Also, some other factors that are taken into consideration while determining the monthly premium are your age, gender, and health. Compared to permanent (whole life) policies, term life has more affordable monthly premiums. For a healthy non-smoker in their 30s, term life may be $20-30 per month whereas whole life would be upwards of $200 each month. For young, healthy people, term life premiums are significantly cheaper.
The common phrase “buy term and invest the difference” sums up the general advice. Instead of paying larger premiums for a whole-life policy and having the cash value savings component, you can buy affordable term life and invest your savings in stocks and bonds of your choosing. The added benefit here is that your beneficiaries can cash out your investments, while the cash value attached to whole-life policies stays with the insurance company upon death.
Parents with minor children can choose to invest in a 20-year term life policy to protect the financial well-being of their family in the case of the death of a caregiver. These large benefits can replace lost income and help the family afford childcare or education expenses until the children are no longer dependent.
Term life insurance coverage is also a good option for those paying mortgages or with other large loans. The benefit can make sure your loved ones are not left with your debt. Some term policies are designed to last only as long as you need them, with level premiums. Term life policies are ideal for people who want substantial coverage at a low cost but they don’t give you the security of knowing you are protected for life which is the case with whole life insurance.
Level-term policies have a fixed premium and death benefit, meaning you have the same monthly rate throughout the life of the policy. These are the term life policies that are most common.
With a yearly renewable term, you can renew the policy each year without having to prove insurability. These have no set term length. Premiums increase each year based on your age.
Decreasing term policies have a death benefit that declines each year based on the length of your mortgage. You pay level premiums and the benefit declines due to the decreasing principal of the loan. These term policies are often used alongside a mortgage. This is because this way, the policyholder has the opportunity to match the payout of the insurance with the declining principal of the home loan.
Convertible term life policies have a conversion rider guaranteeing you the right to convert your policy to a permanent life policy without a medical exam. The new premiums will be based on your age when you convert.
There is a savings component present in whole life insurance which is not the case with term life insurance, which basically has no value other than the guaranteed death benefit.
The reason why term life is usually the least costly life insurance available is that it offers a benefit for a limited time and provides you only with a death benefit whereas when purchasing whole life insurance, depending on the provider, significantly higher premiums are possible.
It depends on your and your family’s needs which insurance would suit you better. Term life insurance is a relatively inexpensive way to secure your dependents with a lump sum in case something happens to you, and if you are young, healthy, and you support a family, it can be a good option.
Whole life insurance, or Universal life insurance, is a permanent type of insurance that comes with significantly higher monthly premiums which are meant to be renewed for as long as you live. As the whole life insurance coverage matures, the policy grows in value and the policyholder can make withdrawals for any purpose. So purchasing whole life can be thought of as sort of an investment product as well as an insurance policy.
Final expense is another type of permanent life insurance you can look into. It is a low-cost insurance policy that pays a small death benefit to the insured’s beneficiaries upon the death of the insured. The final expense’s death benefit is intended to cover the costs of final arrangements and medical expenses or debts for the loved one. The final expense aims to cover the roughly $9,000 in expenses for funeral and burial services.
Insurability is based on your age, medical condition, smoking status, lifestyle hazards, driving record, and more. Younger, healthy people will be able to find affordable monthly policies with large death benefits. If you develop a health condition within the term of your policy, you may not be able to renew or your premiums will increase due to the illness as well as your current age.
For more information about term life policies, reach out to Texas Medicare Advisors today.
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