Term life insurance

Insurance providers refer to term life insurance coverage as the purest life insurance. Somehow, it has similar features to some types of permanent life insurance coverage but has unique characteristics.

Since life insurance coverage is an individual journey and preference, you must determine what works best. A term life insurance policy may not cost you a lot but will require a constant upgrade if you wish to keep the policy active and running.

So, before you begin your journey as a policyholder, you may want to compare the difference between term life insurance and the permanent life insurance coverage, like whole life insurance.

What is term life insurance?

Term life insurance is a temporary type of life insurance that has an expiry date. The coverage runs 10 to 30 years before it expires, so term life insurance policyholders can choose how long they want their policy to last.

When the policy ends, there are more options to choose from; the policyholder can decide to renew the policy to last for another couple of years, allow the policy to end, or turn it into permanent life insurance coverage if your insurance company has the option.

Furthermore, term life insurance has cheaper premiums and contains beneficiary payouts for the policyholder’s loved ones.

How term life insurance works

Anyone seeking to buy this policy must also be comfortable with its temporary duration or be willing to make a serious decision at the end of the policy.

With that in mind, the policyholder can choose the policy amount while the insurance company determines the premium after considering the policy’s value. Generally, policyholders pay cheap premiums at a fixed rate because it is undoubtedly the most affordable life insurance policy. 

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Term life insurance does not have the feature for savings, so you can not build cash value on it. However, the policyholder’s beneficiaries still get a lump of cash. If the policy is in force and the policyholder passes away, the plan’s beneficiaries get a payout from the insurance company. Also, when the policy has expired and not renewed, and the policyholder passes away, the beneficiaries get nothing from the insurance company.

Again, term life insurance can change to whole life insurance if you see that you do not mind having something permanent. Else, you can easily renew if you feel like you are enjoying the features. Renewing your term life policy comes at a higher rate than new policies because things may have changed, and the company may have updated its policies.

Many people buy term life insurance as a means of income replacement or even for estate planning. Whichever the reason, some insurance companies request for medical examination, gender, occupation, family history, health status, and age before working out a policy for the customer.

Types of term life insurance

Just like permanent life insurance coverage, term life insurance comes in different types and rules guiding the policies. 

Level term life insurance

The level term life insurance comes with a regular fixed premium but also has fixed beneficiary benefits. So long the policy is active, nothing tampers with the amount of premiums and the amount of benefit payouts. The level term life insurance can last 10 to 30 years before it expires.

The yearly renewable term life policy

Like the name, it is a term life insurance policy that a policyholder can renew yearly. Also, it is precisely the opposite of the level term policy because nothing is fixed. The premiums keep getting higher as the policyholder advances in age. So, each year, the premium from this policy changes to a higher amount and continues that way.

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Decreasing term life policy

This type of term life insurance is almost the least suitable type of term life insurance. In this policy, the beneficiary benefits keep decreasing as the years go by; however, the premiums stay the same amount without changing until the policy ends. People benefit more from this policy with mortgage insurance, where the payout is laced with the mortgage balance.

Factors to consider

Before you think of this policy, some factors directly affect the policy and how it works.

First, you need to consider your age. Some types of term life policies focus on age before planning the premium. Usually, this coverage benefits younger people, which means cheaper premiums, and older policyholders may pay higher premiums.

Also, those who wish to save money through life insurance may look elsewhere because term life insurance does not build cash value that you can borrow from. Building cash value or saving up your extra premium is not part of the term life policies.

Taking care of your family’s welfare in your absence. The policy only pays beneficiaries when the policyholder passes away and the policy is still in force. An expired policy leaves your loved one without any benefits in the event of the policyholder’s passing.

Other factors that affect this policy extensively include

Your job description. Risky jobs add to the expensive premiums you must pay for the policy.

Your health status mostly tops the list for your premium amount. Insurance companies sometimes make their potential policyholders undergo a medical examination.

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Benefits

The most visible benefit of this policy is that it is cheaper than any permanent life insurance policy. So, it can serve a self-employed individual or anyone with low income who can not afford the higher premiums of permanent life insurance.

Conclusion

Before buying into any life insurance policy, you must weigh your options and consider the advantages and disadvantages.

Check the factors that are in your favor and take your time to check different insurance companies and what they cover in their policies. You may also be lucky enough to get coverage from your place of work and find a policy that will augment the coverage.

However, if term life insurance coverage does not speak to your needs, you can check with permanent life insurance and choose from there.

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