Term Life Insurance
Understanding Term Life Insurance - Rates and Premiums
In general term life insurance is used when people need life insurance coverage for a specific period of time. Term life insurance also makes financial sense when people cannot actually afford permanent life insurance such as whole life insurance. Term life insurance offers a guaranteed death benefit. Annual premiums or costs for term life insurance will typically increase at set intervals of, say, 5 years or 10 years based on the term life insurance contract.
In term life insurance you essentially place a bet with a licensed term life insurance company that you will die within a certain period, therefore will insure yourself for a certain amount of money if you do die. If you do die during that period, a lump sum will be paid out to your dependants. If you do not die during that period, you will not receive any benefit. For this reason, the premiums that you pay for term life insurance will be relatively low, depending on your age, health, amount you want to be covered for and the period for which you want coverage.
Your term life insurance policy cannot be extended, even though you might then be critically ill. Accordingly, you might want to consider the use of "critical care illness" insurance as a supplement to a term life insurance policy. In reality a critical illness can impose the same financial impact as an untimely death.
Financial strategies for using term life insurance vary between families. Rather than increase the coverage associated with whole life insurance, families might well consider adding supplemental term life insurance during high needs years. In so doing, you would obtain a term life insurance quote, compare the life insurance rate and then select a short term policy to coincide with the "college years" for your children or some other scheduled event.
Buying term life insurance is like renting an apartment or house. When you rent, or buy term life insurance, then you get the full use and benefit. As soon as your house lease or term life insurance contract expires, then you must leave or lose the benefit from the term life insurance. For example, consider that you own a $300,000 term life insurance policy and have kept the term life insurance coverage intact for 15 years. The term life insurance policy expires on December 31st. If you die at 11:59PM, then your family receives the full $300,000 in death benefit. However, if you hang on until 12:01 of January 1st, then your family receives nothing. Your contract has expired. No term life insurance benefit is payable.
You must be disciplined in your payment habits for term life insurance. If you miss payments, then the policy can be cancelled and you'd be without any benefits. This becomes a real possibility over time since the term life insurance rates steadily increase over time and may become a challenge for some people to pay in the later years of the policy. Facing a cash crunch on one hand, a person may fail to make required payments and find themselves uninsurable. Typically, a person may buy term life insurance in their 20's, when the rates seen cheap. However, by the time they're in their 60's, the then current rate for their term life insurance policy may seem "sky high". So, what are the policy feature to look for? For one, determine whether the term life insurance policy contains a conversion option. The conversion option allows you to "convert" to whole life insurance without submitting evidence of insurability. So, in addition to seeking the lowest cost term life insurance, you need to consider future needs and whether you just might need to convert to permanent or whole life insurance.