Term Life Insurance. You Should Know About Term Life Insurance. Know Term Life Insurance Term life insurance is a type of life insurance for a specific period of time and is the cheapest type of life insurance you can buy.
Here is a list of 6 things you should know about term life insurance:
1. It is not permanent.
Unlike permanent life insurance, term insurance has an expiry date. It is purchased for a specific period of time. The most commonly available terms are 1, 5, 10, 15, 20, 25, and 30 year terms.
2. There are 3 main types of term insurance:
* Level term – with level term insurance, the face amount of the policy does not change over the entire term of the policy. So if you buy a $250,000, 20 year, level term life insurance policy you will have $250,000 of protection for the next 20 years.
* Increasing term – increasing term insurance has an increasing face amount. Your monthly premiums will usually go up as the coverage increases over time. This type of term insurance is useful for making sure your coverage keeps up with inflation or if you expect your business or employment income to continue to increase over time and you want to make sure your life insurance coverage keeps up with your income.
* Decreasing term – decreasing term insurance has a decreasing amount of coverage over the life of the policy. It usually has level premiums over the term, but they are usually lower than they would be for a similar level term insurance policy. Decreasing term insurance is useful for loans or mortgages which decrease as they’re paid off.
Money Saving Tip: decreasing term insurance is great for mortgages. If you have a 25 year mortgage for $250,000, you can usually get a $250,000, 25 year decreasing term insurance policy for much cheaper than the mortgage insurance that banks often try to sell you when they give you a mortgage.
3. The premiums usually don’t change.
The cost for a term insurance policy usually doesn’t change over the entire term of the policy. So if you buy a 30 year term insurance policy when you’re 30 years old, you will usually pay the same monthly premium until you’re 60 years old. The main exception to this rule is for increasing term insurance where your premiums increase along with increasing coverage.
4. A renewable and convertible option (R&C option) is often available.
This is often an option you can buy with term life insurance.
* The renewable option allows you to be able to renew your life insurance policy for another term without having to go through any health questions or testing. Although you won’t have to go through any medical testing, your premiums will change depending on your current age and the length of the new life insurance policy.
* The convertible option allows you to convert your term policy into a whole life insurance policy without having to go through any health questions or testing. Whole life insurance is much more expensive than term insurance and your new premiums will be based on the amount of whole life insurance you want and your age when you purchase it.
5. Term life insurance is perfect for short term life insurance needs.
Many life insurance needs are not permanent. You might need to have life insurance in place to make sure that loans, credit cards or your mortgage can be paid off in the event you pass away before they’re all paid off. Many people often only require life insurance until their children are finished school and leave home. Or you may only need life insurance until you’ve built up enough savings and investments that you’ve become self insured.
6. It is the cheapest form of life insurance.
Since term life insurance doesn’t have a savings or investment account like most types of permanent life insurance, its’ price is much lower. You can purchase a large amount of insurance relatively cheaply. With the money you save by buying term insurance instead of permanent insurance, you can start your own savings plan. This approach is commonly called buy term and invest the difference.
BUY TERM AND INVEST THE DIFFERENCE IS THE WAY TO GO
The money you save by buying term insurance instead of permanent insurance can be invested. This allows you to build up savings just like you would if had a permanent life insurance policy. But with this approach you will have more control of your investments, and often much better returns so your savings will grow faster. This approach is called buy term and invest the difference.
Eventually you can build up enough savings and investments that you become self-insured. Being self insured means that you have enough money saved so that your family and obligations will be taken care of if you pass away. The benefit of doing it this way is that you won’t have to pay insurance premiums for your entire life. Once you have enough money saved, go ahead and cancel that life insurance policy and save yourself the monthly premiums.
Here is a list of 6 things you should know about term life insurance:
1. It is not permanent.
Unlike permanent life insurance, term insurance has an expiry date. It is purchased for a specific period of time. The most commonly available terms are 1, 5, 10, 15, 20, 25, and 30 year terms.
2. There are 3 main types of term insurance:
* Level term – with level term insurance, the face amount of the policy does not change over the entire term of the policy. So if you buy a $250,000, 20 year, level term life insurance policy you will have $250,000 of protection for the next 20 years.
* Increasing term – increasing term insurance has an increasing face amount. Your monthly premiums will usually go up as the coverage increases over time. This type of term insurance is useful for making sure your coverage keeps up with inflation or if you expect your business or employment income to continue to increase over time and you want to make sure your life insurance coverage keeps up with your income.
* Decreasing term – decreasing term insurance has a decreasing amount of coverage over the life of the policy. It usually has level premiums over the term, but they are usually lower than they would be for a similar level term insurance policy. Decreasing term insurance is useful for loans or mortgages which decrease as they’re paid off.
Money Saving Tip: decreasing term insurance is great for mortgages. If you have a 25 year mortgage for $250,000, you can usually get a $250,000, 25 year decreasing term insurance policy for much cheaper than the mortgage insurance that banks often try to sell you when they give you a mortgage.
3. The premiums usually don’t change.
The cost for a term insurance policy usually doesn’t change over the entire term of the policy. So if you buy a 30 year term insurance policy when you’re 30 years old, you will usually pay the same monthly premium until you’re 60 years old. The main exception to this rule is for increasing term insurance where your premiums increase along with increasing coverage.
4. A renewable and convertible option (R&C option) is often available.
This is often an option you can buy with term life insurance.
* The renewable option allows you to be able to renew your life insurance policy for another term without having to go through any health questions or testing. Although you won’t have to go through any medical testing, your premiums will change depending on your current age and the length of the new life insurance policy.
* The convertible option allows you to convert your term policy into a whole life insurance policy without having to go through any health questions or testing. Whole life insurance is much more expensive than term insurance and your new premiums will be based on the amount of whole life insurance you want and your age when you purchase it.
5. Term life insurance is perfect for short term life insurance needs.
Many life insurance needs are not permanent. You might need to have life insurance in place to make sure that loans, credit cards or your mortgage can be paid off in the event you pass away before they’re all paid off. Many people often only require life insurance until their children are finished school and leave home. Or you may only need life insurance until you’ve built up enough savings and investments that you’ve become self insured.
6. It is the cheapest form of life insurance.
Since term life insurance doesn’t have a savings or investment account like most types of permanent life insurance, its’ price is much lower. You can purchase a large amount of insurance relatively cheaply. With the money you save by buying term insurance instead of permanent insurance, you can start your own savings plan. This approach is commonly called buy term and invest the difference.
BUY TERM AND INVEST THE DIFFERENCE IS THE WAY TO GO
The money you save by buying term insurance instead of permanent insurance can be invested. This allows you to build up savings just like you would if had a permanent life insurance policy. But with this approach you will have more control of your investments, and often much better returns so your savings will grow faster. This approach is called buy term and invest the difference.
Eventually you can build up enough savings and investments that you become self-insured. Being self insured means that you have enough money saved so that your family and obligations will be taken care of if you pass away. The benefit of doing it this way is that you won’t have to pay insurance premiums for your entire life. Once you have enough money saved, go ahead and cancel that life insurance policy and save yourself the monthly premiums.
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