Term Insurance Policies Explained
Term insurance is known as temporary insurance. If the correct policy is applied to the correct temporary need it will work well for policy owners.
Some needs are short term and some long term but temporary just the same. On the other hand there are permanent needs for life insurance which will be there for the rest of your life.
If you have a permanent need you need to buy a permanent policy like universal life, variable universal life, variable life or whole life insurance. There are many types of term insurance policies. Let us look at the need and which policy to apply to that need.
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Term Insurance In Action
If you have a mortgage on your house you need insurance. You need a homeowners policy that would provide sufficient cash to repair or rebuild your home in the event of destruction by fire, flood, a hurricane or any other natural disaster.
It is also important to own a disability insurance policy that would provide a portion of your income in the event you should become disabled. You certainly would want to have your mortgage paid off in the event of premature death...wouldn't you?...
As you will have that mortgage for a specific period of time that can be categorized as a temporary need. Most people buy decreasing term life insurance to fulfill this need. If you have, for example, a 20 year mortgage you would buy a 20 year decreasing term life insurance policy.
As the mortgage balance decreases the death benefit decreases as well. Upon death the mortgage balance will be paid off by the term insurance policy proceeds.
- Paying Off A Loan
Suppose you buy a new car. You put down a small down payment and you will pay this off in about 5 years. If you suddenly died that money is still owed to the bank and they will likely come and repossess that car.
If it is your desire that a relative or friend should own that car and you include that in your "last will and testament" it would make sense to buy a 5 year term insurance policy in the amount owed on the car.
Upon your death the amount owed will be paid off. If there is any money over and above the amount owed coming from the policy your beneficiary will receive the balance.
Protecting A Young Family
One of the most devastating experiences a young family can go through is the death of the breadwinner. You are in your mid twenties and married. Your wife is about the same age and you have two children ages 3 and 1.
Although your wife graduated college you both came to the decision that she would stay at home for a while and look after the children. Through the carelessness of a drunk driver you are killed in a automobile accident...
Try to imagine the situation the family will be in. There are final expenses to be paid. Court costs and attorneys fees, burial costs have to be paid while your wife and children have to continue living.
Rent or mortgage payments have to be made as well as utility payments. The biggest bill will be the maintenance of the family until they can fend for themselves. All these things can be taken care of with a well thought out 20 year or 25 year term policy.
This term insurance policy can be designed to pay a small lump sum up front to cover the immediate needs. The balance would pay an income equal to your present income for a specific period of time.
This income coming from your term insurance would last until your children graduate college. It could even be set up to pay an income for as long as your wife would live.
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