When it comes to buying life insurance, you may not know where to begin. You don’t want to pay more than you need to, but you want to be sure the coverage is there when it is needed.
Term life insurance is a very popular choice for many consumers because it has the lowest current cost and provides the most basic form of life insurance protection. Protection is only for a stated period of time, for example 20 years, and as long as the premiums are paid, the death benefit protection is active; if premiums are not paid, the death benefit protection ceases.
With a typical term policy, premiums may be level for several years, but will eventually increase. Unfortunately, if you live a long life, and you decide to extend your term coverage, cumulative premiums could ultimately end up costing more than other types of permanent life insurance coverage. As a matter of fact, premiums may become completely unaffordable when you get to be 80-90 years old.
Term insurance is ideal if coverage is only needed for a short period of time such as while you have a mortgage, or until the children complete their education.
Even if your insurance needs are more permanent than temporary, term insurance may still be a good choice for you—at least initially. If you’re on a tight budget, but have the expectation that your salary will rise in the future, most term policies offer conversion privileges. Conversion privileges allow you to start out with a less expensive term policy, and then when you can afford it, exchange it for permanent coverage. In addition to the benefit of having permanent coverage, exchanging to a permanent policy offers the potential to build cash values—values that can be accessed during your lifetime using policy loans and withdrawals.
Although term insurance is considered the simplest form of insurance protection, it isn’t as easy to shop and compare coverage as you would think. Comparing the cost for the same death benefit is easy to do, but the lowest cost product may not actually be the best choice.
It is important to look at the conversion options. Will you be allowed to convert to any policy, or are only “special” policies allowed and will these “special” policies be less attractive in terms of pricing and features? Is the term insurance product guaranteed to renew after the initial term period ends, or will you have to go through underwriting again and run the risk of not qualifying to renew your coverage? Does the term product offer accelerated benefit riders that allow you to access policy values in the event of a qualifying Terminal, Chronic or Critical Illness or Critical Injury? Usually you will find that the lower the premium, the less likely it will have these attractive features.
The current cheaper premium may be very attractive today, but the long term costs need to be considered as well. Is your life insurance need truly temporary?
In the end, the type of policy is not as important as having the protection when you need it.
Click here to learn more about the different types of life insurance.
Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Surrender charges may reduce the policy’s cash value in early years. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy. Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the under the policy. Receipt of Accelerated Benefits may be a taxable event and may affect your eligibility for public assistance programs. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you.
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