Term Insurance Explained
Want to know how term insurance works? Want to find out which policy, term or permanent, is best for you?
Take a look at this page to learn about these policies.
What I want to do here is give you a basic and general outline of term
life insurance policies as well as descriptions of how they are used.
will also discuss the advantages of buying term policies as well as the
It is important that you know how these plans work.
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What Is Term Insurance?
This type of insurance can be described as basic life insurance
without anything added. It provides a guaranteed death benefit for a
specific period of time. Some
term life policies
have a guaranteed level death benefit.
This really means that it doesn't go up or down, it remains the
same for as long as you own the policy.
These include the yearly
renewable term life insurance policy, the 5 year guaranteed level term
life policy, the 10 year guaranteed level term life insurance policy,
the 15 year guaranteed level term policy, the 20 year guaranteed level
term policy and the 30 year guaranteed level term life insurance policy.
Other term life policies may decrease over time (e.g the decreasing
term policy) This policy is usually used as mortgage protection
The Advantages Of Term Life Insurance.
- Not everyone has sufficient income to pay for
permanent life insurance
like whole life, universal life and variable life insurance. These
people need to provide ample protection for their families or for a
The best way to go is to buy
insurance or a combination of term and permanent insurance.
- Term life insurance would provide a lump sum
payment upon your death which is usually free of income taxes or you may
decide to have an income paid to your loved ones.
- There is usually a conversion privilege built
into this type of insurance. The policy may be converted to permanent
life insurance during the policies lifetime.
Some life insurance
companies limit the period in which conversion may be effected. At the
conversion point you do not need to do a
The company must convert the policy upon your request.
Disadvantages Of Term Life Insurance.
- With the yearly renewable term policy the premium increases every
year. If you keep it too long before converting it the premiums could
become prohibitively expensive.
If you should develop some sort of
illness which would prevent you from getting new insurance you will be
left with the high premiums to pay.
- All term policies have a limited period of time
for which you can keep them in force. There is no more insurance after
the time period expires.
- There are no cash values available to you if you
should fall short and are unable to pay your premiums, neither is there
any loan value.
- Term insurance does not participate in
which are available to whole life policy owners if the life insurance company performs well.
Now that you have a basic understanding of the advantages and
disadvantages of term insurance let us take a look at some of the plans
and how they work.
- 5 Year Term.
You initially purchase this policy for a 5 year period and the
death benefit remains level for the duration...so do the premiums. You
5 year term
insurance to fulfill a short term life insurance need.
- 10 Year Term.
10 year term
is a very good starter policy...especially for young married people.
Because of it's low cost you can purchase a large policy without putting
your pocket book under any strain.
The intent is usually to convert the
policy to permanent insurance when able. The death benefit as well as
the premiums remain level for the duration.
- 15 Year Term.
15 year term
insurance policy is very similar to the 10 year term policy but lasts
an extra 5 years. It can also be used for family protection.
- 20 Year Term.
20 years seem to be a good period to plan for whether you are
thinking about protection for the family or about business insurance.
For that reason the
20 year term policy
is very popular among life insurance buyers.
The level premiums of this
policy are usually quite affordable and the death benefit, which also
remains level, can be paid either in a lump sum or in the form of an
- 25 Year Term.
25 year term
policy is quite attractive to young married couples as well as business
people planning to protect their assets. This policy has a level death
benefit and level premiums as well.
- 30 Year Term.
Whole life insurance whether in it's original form or modified
form offers more safety than term insurance because the period for
which you can keep it never expires.
30 year term
life insurance policy, though it expires in 30 years, gives the owner
excellent coverage at a reasonably inexpensive cost for all of 30 years.
As with most term policies if you think you will still need insurance
after the 30 year period you have the option of converting the policy to
a permanent policy within a specific "conversion period".
- Yearly Renewable Term.
This is simply a
1 year term policy
which allows you the opportunity to keep the policy for each additional year at additional cost.
- Decreasing Term.
life insurance, though at times is used for other purposes, was
specifically designed to pay off the balance owed on a mortgage upon the
death of a homeowner. The premiums remain level and are quite
The death benefit, however, decreases each year. The amount
of coverage is always quite close to the balance owed. Upon death the
decreasing term insurance policy provides sufficient cash to pay off the mortgage.
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