Term Life Insurance Explained
The primary purpose of life insurance is to move the financial risk to the insurance company, if you die early. There are essentially two types of Life insurance – temporary/term/mortgage and permanent life insurance.
Term life insurance provides cash, in the event of death, to your dependents to:
- Settle your debts – mortgages, lines of credit and loans (business & personal)
- Remove guarantees by paying off the debt
- Make up for the income you provided to the family.
- Provide for children’s education, marriage etc.
- Complete the funding for your spouse’s retirement plan.
- For businesses, it can fund a buy/sell agreement or to provide insurance on a key employee to provide cash to find a new person, absorb the financial shock of the loss and have additional funds to pass on to the family of the deceased.
Term insurance is often for short term purpose generally till age 65. Term life insurance can be very inexpensive for the amount you are purchasing depending on age, sex, smoking habits and lifestyle issues. In this case rates are guaranteed for that period of time and they will automatically renew at a higher rate for the next term period.
Some Money Tips
Tip 1: Purchase the insurance from an independent insurance agent, who is not tied up with just one insurance company. An independent agent, that contracts with various insurers, may get you a very competitive rate.
Tip 2 : Carefully assess time period for which you need temporary insurance. If you need less than 10 years, don’t go for 20 years term. Avoid renewing term policies and paying high premiums – just buy a new term insurance policy if your medical conditions are good.
Most term policies are convertible that gives you the right to convert all or part of the policy to a Permanent insurance Policy at any time during the term period without a medical. Your premium is based on your age at the time of conversion. If your term insurance policy was issued on a preferred basis, some will allow you to convert on a preferred basis if they have preferred universal life insurance rates. This is an inexpensive option that is usually built into the policy cost and worth the extra price.
Always buy convertible term insurance. Who knows, your needs may change.
Tip 3: Ask for preferred life insurance rates to pay a lower premium.
Tip 4: If you are a smoker of the occasional cigar, some life insurance companies may consider you as non smoker.
Tip 5: If you have group insurance through an association or group at work, consider replacing all or part of it with your personal term life insurance policy. With increasing age, the cost of group policies increase significantly and will become more expensive. If you leave the group or employment, while you might have an option to convert it within 30 days that will be at a prohibitively expensive premium. Have a personal life insurance policy that is yours.