Term Life Insurance: Definition, Benefit, and Comparison
Term Life Insurance Definition
What is Term
life insurance? There is many variation of term life insurance definition pros
cons. But I will make a simple explanation so it would be easy to understand. Term
life insurance which is also known as pure life insurance, is a life insurance
that will guarantees the payment of death benefits over a period of time. After
the term expires, the policy holder can extend the life insurance for another
period of time, convert the life insurance to permanent coverage, or let the life
insurance policy to expire. Term life insurance policies provide benefits
stated at the time of death of the insured, provided that the death occurs
within a certain period.
Term Life Insurance Break Down
If you still
don’t know what is Term Life Insurance Break Down, and still asking ‘What is
the purpose of term life insurance?’. I will explain it to you. The policy of
term life insurance has no value other than guarantee of death benefit. There are
no savings component, except as is found in all life insurance products. The
policy objective is to provide insurance to individuals for loss of life. All
premiums cover the insurance costs. And the result, premiums life insurance are
usually lower than premiums permanent life insurance.
Characteristics of Term Life Insurance
The basic of
premium term life insurance is based on the health, age, and life expectancy of
the person. And all of those are determined by the insurance company. If the
person dies within the specified policy period, the insurance company will pay
the nominal value of the policy. But if the life insurance policy expire before
the death of the policy holder, there is no payment. Policy holders may be able
to renew their term of life insurance policies when they expire, but their
premiums will be recalculated for the age they have reached.
Because the
life insurance offers benefits for a limited time and only provides death
benefits, life insurance is usually become the cheapest life insurance
available. A healthy 40 year old and non smoker person, usually can get a 25 year
premium life insurance policy with a nominal value of $ 300,000 for around $ 25-
$ 30 per month. But when you buy a lifetime equivalent, you will have a much
higher premium, maybe around $ 250 - $ 300 per month. Because most of term life
insurance policies will expire before paying death benefits, the insurer would take overall risk which is lower than
the permanent life insurance policy. Risk reduction allows the insurance
companies to provide cost savings to customers in the form of lowering
premiums. And the Characteristics of Term Life Insurance is different with Characteristics
of Whole Life Insurance.
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To make it
easier to understand, I will give a simple explanation. There is a man, called John,
who is 35 years old. And he wants to protect his family in the unlikely event
of his early death. Then he buy a $ 400,000 ten year life insurance policy, and
he get the premium for $ 40 per month. If John dies within 10 years, the life
insurance policy will pay John for $ 400,000 beneficiary. Or in other case, John
did not pass and now he is 45 years old. His life insurance term policy has
ended. If he chooses not to extend his life insurance policy, and then he dies,
his beneficiary would not receive benefits. But if he decides to renew the life
insurance policy, the new policy will base the premium at his current age, 45
years.
Term Life Premiums Explanation
Age, gender,
and health of the insured, are the main determinants for calculating policy
premiums. Depending on the amount of face of the life insurance policy, a
medical examination may be needed. And other common factors are the family
history, driving record, employment, smoking status, and hobbies of the insured.
The Premium
Life Insurance is the level for the duration of the contract. However, life
insurance costs would increase because the life expectancy of the insured
decreases. After the renewal of the life insurance policy, the policy holder
will realize a significant increase in premiums from his insurance. And based
on actual data that I got, the average of life expectancy in the US is around
78.85 years. Therefore, a 20 year old person who has the remaining life
expectancy of 58.85, when compared with a 50 year old person with a remaining
life expectancy of 28.85 years. The risk of taking insurance for a 20 year old
child is less than the risk of protecting a 50 year old person.
The state
regulations , rates of the interest, and insurance company finances can also
affect the life insurance premiums. In general, insurance companies often offer
better rates at "breakpoint" coverage levels of $ 200,000, $ 350,000,
$ 600,000 and $ 1,000,000. But it maybe a little bit different for each
insurance company, but that won't be a lot difference.
3 Types of Term Life Insurance
Types of
level term life insurance, or the premium level policies provides coverage for certain
periods from between 10 until 30 years. Both of the death benefits and premiums
are fixed. Because actuaries must take into account for the increase in
insurance costs during the validity period of the policy, premiums are
relatively higher than term life insurance which can be renewed annually.
And for your
information, the Yearly Renewable Term (YRT) policy does not have a certain
period of time, but it can be extended annually without requiring proof of
insurance every year. First, the premiums wodul be low, but as your age grow
older, the premiums would increase. Unfortunately, because there is no
specified term, premiums can be very expensive as individuals age, and make
this policy choices that do not appeal to many people.
The term
reduction policy has a death benefit that decreases every year according to a
predetermined schedule. Policyholders have to pay a fixed, premium level for
the duration of the policy. The term decreasing policy is often used in
conjunction with a mortgage to match coverage with a declining home loan
principal.
Benefits of Life Insurance
If you still
wondering what are the advantages of term life insurance quizlet? This is what
you need to know. Sometimes, term life insurance is looked more attractive for
young couples with children. Because the parents can get large amounts of
protection at a relatively low cost. After the death of the parent, the significant
benefits can replace lost income. The term life insurance are also suitable for
people who temporarily need an amount of life insurance. In these cases,
policyholders believe that those who survived will no longer need additional
financial protection, or they will accumulate enough liquid assets to insure
themselves.
Term vs ‘Permanent’ Whole Life Insurance Pros And Cons
This is the
answer for term vs whole life insurance suze orman. The choice between a
permanent life insurance policy and a cash value (term life) insurance product
such as a lifetime or universal life and the validity period of life insurance
depends on the circumstances and needs of the policy holder. Some people think
that term life policies are ideal for people who want substantial protection at
low costs. For lifelong customers have to pay more in premiums for less
coverage, but they are have the security of knowing that they are protected for
life.
While many
buyers like the affordability of the time life insurance, not having benefits
after the expiration of the term, and paying premiums for long periods of time,
are considered as unattractive features. After the renewal, life insurance
premiums increase with age that getting older, which can make the cost of new
premiums become more expensive. In fact, the renewal of life insurance premiums
may be more expensive than permanent life insurance premiums would have been on
the issue of term life insurance policies for a long time.
Some
customers prefer to choose permanent life insurance, because the policy of permanen
life insurance can have an investment or savings vehicle. Some of each premium
payment is allocated to cash value, which may have guaranteed growth. Some
packages pay dividends, which can be paid or stored in the policy. Over time,
the growth of cash value may be enough to pay premiums to the policy. There are
also some unique tax benefits, such as the growth of deferred tax cash value
and tax-free access to the cash section.
My friends who
was become Financial advisors, warn me that the growth rate of cash value
policies is often trivial compared to other financial instruments, such as Exchange
Traded Funds (ETFs) and mutual funds. Also, substantial administrative costs
often hinder returns rate. Therefore, the common phrase said "Buy the term
and invest the difference." However, the performance is stable and
taxable.
Unfortunately,
there is still no one size answer for which is better for the term life
insurance vs permanent life insurance debate. But there is 5 other factors to
consider, include:
Is the rate
of return that we could earned from the investment is feasible for the client?
Will this
investment be a traditional or a plan that meets the requirements, and will
there be a contributions that are in line with the employer sponsored plan?
Is there any
loan terms and other features in permanent life insurance policy?
Does the
policy holder intend to own a business that needs insurance protection?
Will life
insurance play a role in protecting taxes from substantial assets?
Convertible Term Life Insurance Pros and Cons
Renewable
Term Life Insurance or Convertible Term Life Insurance, is a term life
insurance policy that includes conversion for drivers. The driver guarantee the
right to change the applicable time period policy, or policies that will
expire, become permanent plans without going through underwriting or proving
insurance. The conversion driver must allow you to convert to the permanent
policy offered by the insurance company without limitation.
The driver's
main feature is maintaining the original health rating of the term policy at
the time of conversion, even one day if you have a health problem or become
insured, and decide when and how much of the coverage to convert. The basis for
a new permanent policy premium is your age at conversion.
And of
course, because lifetime insurance is more expensive than life insurance, the
overall premium will increase significantly. The advantage is an agreement that
is guaranteed without a medical examination. And if the medical conditions that
develop during the term life insurance period, it cannot adjust the premium
upwards. Still, if you want to add a new drivers to new policies, such as
long-term care drivers, the companies may require limited or full underwriting.
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