When you purchase a life insurance policy, you are securing the future of your family. And when you surf the web about life insurance, there’s a lot of information you can get. In addition, you can see a lot of term life insurance ads. It’s because term life insurance is one of the most popular options in terms of life insurance.
Term life insurance is an amazing option with lifetime benefits. But there are many details that we don’t know about. We all need truthful advice in order to have a good decision. So, if you are looking for more information regarding term life insurance this article is for you.
What is term life insurance?
Term life insurance is one of the most popular types of life insurance wherein it provides coverage for a certain period of time. Term life insurance, sometimes refer as pure life insurance. This type of insurance ensures death benefit payment if a client dies within the specific term.
It is usually best for additional short term coverage due to a sudden increase in liabilities. It is because if the agreed term expires, the policyholder doesn’t have an option to renew his / her policy for another or convert it to a whole life insurance. “You can check our article on whole life insurance” to get more information regarding whole life insurance.
Term life insurance is actually fit to young parents who are eligible for large amounts of coverage for a reasonably low price. It’s also suitable for people who want temporary life insurance, and to people who don’t want to pay high premiums.
The premiums in term life insurance are actually depends on the value of your policy. It’s also known as the payout amount or the death benefit. There are several factors that affect premiums : age, gender and health. That’s the reason why insurance companies are requiring clients to take a medical exam first before they provide coverage.
Benefits of term life insurance
- Term life insurance is affordable and less expensive. Term insurance is an inexpensive product or option. So, for those people who have other financial commitments term life insurance is good for you.
- It provides more flexibility. Term life insurance provides you with more flexibility, as it gives you an ability to choose how long the protection for your commitments and liabilities lasts. It can also give you an idea to determine exactly what your endpoint is.
- Term insurance is great for short term needs. Term life insurance is actually a very good solution in terms of protecting commitments, which have a fixed duration.
Disadvantages of term life insurance
- It’s expensive to get a new one when it expires. Once your term life insurance expires you have to apply for a new one. When that point comes you might not be physically fit or medically fit to be able to get a new one.
- It lapses if you didn’t pay your premiums on time. When it comes to term insurance policies, you have to pay on time. Take note that if you skip even ones, your premiums or the policy can lapse.
- Flexibility is not available in term life insurance. Increasing your life insurance coverage or reducing it are not possible. In addition, changing your term is also not possible. You need to apply for a new product if you want those things to happen.
Additional Information
The premiums you are paying are lower than other types of life insurance. The reason behind this is term life insurance only provides a death benefit. The overall risk of the insurer is lower than the whole life insurance. Because most term life insurance policies are expiring first before the insurer pays the death benefit.
Take note that beneficiaries can be a person (e.g. wife or husband), non-profit organization or business that gets the death benefit if the client passes away. Death benefits are non-taxable and beneficiaries can use this to settle any outstanding debts.
Also if you are a policyholder, you need to make sure that the beneficiary or your family knows about your term policy. You also need to inform them who to contact in case you pass away, in order for them to access the death benefits that are meant for them.
Term life policies don’t possess any value aside from a guaranteed death benefit.
Term insurance comes in different types, these are the convertible, increasing, mortgage and annual renewable. Each one of these gives people their specific needs.
- Convertible Term – This type of term life insurance allows conversion of your policy into whole life insurance. Medical exams are no longer a requirement when the term policy is converted into another term life policy. Take note that some insurance companies have the ability to refuse a renewal of coverage at the end of the policy’s term if they determine that the policyholder developed a serious illness.
- Increasing Term – This term allows to increase the death benefit as the time goes by. When the death benefit increases, premiums also increase. But the good thing is it allows the policyholder to pay lower premiums in his early life when they have a lot of bills to pay, then increase it when they achieve a better financial stance. The other benefit of this type is that the policyholder does not need to get another policy at an older age to get a higher death benefit.
- Mortgage term – This term is also known as the decreasing term. It is the exact opposite of the increasing term. This type works in a way that the death benefit amount decreases over time. The reason behind this is to match the death benefit with the decrease of the policyholder’s outstanding mortgage amount. The word decreasing may be confusing for some people as the premiums are smaller than the normal term life insurance. But it remains constant over the entire term even as the death benefit declines.
- Annual Renewable – The main benefit of this type is that the coverage is 100% guaranteed to approve every year. But clearly this may not be a good option or not financially suitable for everyone since the premiums increase with every year’s renewal. You can watch the video below to learn more about annual renewable.