Term Life Insurance
Term Life Insurance is the most basic form of life insurance and can be a cost effective solution for anyone. Term life insurance is typically the best priced solution for time specific needs or when keeping costs low is a prime motivator. The most common time periods chosen are for 10, 20 or 30 years of coverage.
Term life insurance provides coverage for a fixed period of time at a fixed rate, at the end of that specified time your coverage can be continued, but it’s important to know it’s often at a higher rate for the next term (due to your age increase and any possible health related issues) and usually stops at age 75 or 85 depending on the insurer.
Many plans can have an additional option which makes the policy “Renewable and Convertible”, which means at the end of your term, you will have an option to renew your insurance or convert it to another type.
Term Life Insurance can be a great fit for:
PARENTS: For example, if you’re a parent and your youngest child is 2 years old, you might choose a 20 year term which will offer your family coverage up until your child graduates from college, usually at age 22.
At the end of that 20 year term the parent will have a number of options available to them:
(1) Continue the term life insurance at the new rate.
(2) Convert to permanent life insurance.
(3) Reduce the amount of term life insurance.
(4) Cancel the term life insurance.
(5) Any combination of the above.
DEBTS: Term life insurance is also very good for covering short to medium term debts or obligations including the mortgage on your house. See mortgage insurance.
DIVORCE: For example, if after a divorce you want to guarantee the support income from your ex, you might want to consider getting term life insurance on your ex-spouse. A Term 65 Life Insurance could be the best option here because it provides protection up to age 65.
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BUSINESS: Term can also be used in the case of business debt, for example, if a business has a 5 year loan, it might want to insure that amount with a 5 Year Term Life Insurance on the owner of the company. Some business owners will choose a 10 Year Term Life Insurance, because usually the Term 10 is better priced and it allows for a longer time horizon.
Then when the loan is paid off the business may:
(1) Continue the term life insurance because it has new debts.
(2) Continue the term life insurance because the business needs Key Man Insurance.
(3) Continue the term life insurance because of a need to fund a Buy-Sell Agreement.
(4) Convert to permanent life insurance for the owner.
(5) Reduce the amount of term life insurance.
(6) Cancel the term life insurance.
(7) Any combination of the above.
Remember, over a period of time your insurance needs may evolve. Term life insurance has some built in flexibility and it offers you the opportunity to convert it to permanent life insurance. This means your term life insurance can be a bridge from your short term needs to your long term protection needs. For more information you can click here to get an independent assessment of term life insurance.
Be Aware: Every time you need to renew your term life insurance it keeps getting priced higher as the age of the insured goes up, it can get to the point where the cost becomes prohibitive and the insurance is better off cancelled. However, most term life insurance can be converted at any time to permanent life insurance.
Caution: Most term policies will expire at age 75 or 85. This means that if the term life insurance is not converted to permanent life insurance or there has not been a death claim then the term life insurance will expire without a death benefit ever being paid out.
Tip 1: Buy your term life insurance early on to make sure you are still insurable and so that you are more likely to qualify for preferred rates.
Tip 2: Make sure you are getting the right advice, especially in business situations, because you won’t know you’ve got it wrong until it’s too late!
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