Buying A Term Insurance Policy

A term insurance policy is the most budget-friendly choice for people who are looking for inexpensive life insurance. Why? Because the premiums for term life coverage are normally a lot lower than cash value policies. If you are young and healthy, term life insurance does exactly what you need it to do by providing for your beneficiaries if you should die.

When you start to shop for life insurance, it’s important to know the differences between the two most common plans available, term life and cash value. Term life is simply insurance coverage for your life set up to protect your beneficiaries. You can purchase a term life policy for one year or up to thirty years, and upon your death, your beneficiaries will be paid the face amount of the policy.

A cash value policy, however, combines a term insurance policy with an investment element that can include stocks, bonds, or a money market account. These plans build “cash value” that you can borrow against if you choose to and include universal, variable, and traditional whole life policies. Both term and cash value policies give you the option of  locking in the same monthly premium over the term of the policy.

Cash Value=More Cash Out Of Pocket

Cash value insurance is costly because you are paying for the investment portion as well as for the insurance coverage. Insurance agents refer to these policies as retirement plans because the extra money that you pay in premiums is invested and placed into a “savings account” that you can then use in your Golden Years. These policies can be a good investment only if you plan on leaving it alone for at least 20 years, but chances are that you can find more effective ways to save for your retirement.

In addition to the high premiums, cash value policies also include commissions and high fees that can knock off up to 3% of the yearly return. Additionally, there are hidden up-front commissions that usually account for 100% of the premiums that you pay in the first year. It’s also worth mentioning that it is often not possible to know what the return on your investment will be or what portion of your premium goes toward the insurance policy itself and what portion of it goes towards the investment vehicle.

The premiums for a term insurance policy are incredibly affordable for healthy men and women up to age 50. However, premiums start to get increasingly more expensive past that age. The same is true for cash value policies even though individuals 60+ years of age that need coverage may not have a choice but to buy a whole life policy. This is simply because most insurers just won’t sell term coverage to people over 65.

What You Should Know About Term Life Insurance

A term insurance policy is pretty basic but you need to be aware of a couple of things. First off, the death benefit may not be the same throughout the coverage depending on whether you choose level, increasing, or decreasing, term life insurance.

• Level term insurance means that your death benefits will remain the same for the entire term of the policy.
• Increasing term life insurance means that the premiums and face value of the policy will increase over time at a fixed rate.
• Decreasing term insurance means that the death benefits will decrease over the term of the policy and is usually purchased by people with financial obligations that will decrease over time, like a mortgage or a business loan.

Second, you need to have a game plan for when the term is up and that is where renewable and convertible term life insurance comes into play. Renewable term insurance allows the policy to be renewed for another term without having to prove that the insured is still in good health. As long as the premiums are paid, the policy will automatically renew for another term up to a maximum age limit set by the insurer. As one would expect, the premiums for this renewed policy will more than likely be higher than the premiums paid for the initial term policy.

A convertible term life policy allows the insured to convert from the term insurance policy to a cash value life insurance policy without having to prove that the insured is still in good health. Let’s say that you want a basic 10-year term life policy with the death benefit that stays the same throughout the life of the policy and at the end of the term, you would like to convert to a different type of life insurance coverage such as a cash-value policy, without taking another medical exam. In this example, you would select a level term, convertible life insurance policy.

Is A Term Insurance Policy Right For You?

Term life insurance doesn’t have the tax benefits or a built-in savings account like cash value insurance, but it can be a great choice for someone who just wants affordable life insurance for a set period of time. Here are some questions to help you figure out if a term life policy is right for you:

• Do you only need insurance for a specific period of time?
• Are you on a budget and need a lower premium?
• Are you under the age of 50 and in good health?
• Are looking for a simple and affordable life insurance plan to protect your family or your business?

Bottom line: Don’t let the process of finding and buying a term insurance policy become intimidating. There are a number of online resources that you can take advantage of and numerous insurance websites that provide side-by-side comparisons of different policies offered by top-rated insurance companies. They also provide toll-free numbers that you can call to speak with a qualified insurance professional. With the right information, you can find a low cost term life policy that fits your need and your budget. Take care!

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