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WHAT IS TERM LIFE INSURANCE?

Term life insurance is the cheapest, simplest type of life insurance. Term life insurance means that the policy provides coverage for a certain number of years. (You can choose  10, 15, 20, 30… depending on the life insurance company.)

HOW TERM LIFE INSURANCE WORKS

Term life insurance includes the attributes common to all life insurance policies.

A standard term life insurance policy guarantees fixed premiums. That means that the size of payments made to the life insurance company does not change over time. The policy owner makes payments, all of equal amount, at equal intervals of time (monthly, quarterly, semi-annually, or yearly, depending on the company and policy). The policy owner is free to discontinue payments at any time; if he/she does so, however, the policy will terminate (i.e. the life insurance company is no longer obliged to pay a death benefit).

A standard term life insurance policy guarantees a fixed death benefit. That means that the death benefit will be of a certain amount regardless of how long the policy has been in force. The insurance company will pay the same amount if the insured dies during the first day of coverage as if he/she dies during the 29th year of coverage.

For example, a 20-year policy is intended to provide coverage for 20 years and no longer. However, there are exceptions to this temporary character. Most Policies have a convertibility clause which means you can transfer a portion of the death Benefit to permanent coverage. Each Life Insurance Carrier is different.

AT THE END OF THE TERM…

You might imagine that your life insurance is simply gone at the end of your term of coverage: if the insured is still alive, your beneficiary gets nothing. That’s not a bad thing; after all, a healthy, living person is preferable to a cash payment. However, there are usually alternatives to letting your coverage simply cease.

Most term life insurance policies simply don’t terminate after the “term of coverage.” You can keep paying premiums and keep enjoying coverage.

Another option is conversion. Conversion means that your life insurance company will replace an existing term life insurance policy with a permanent life insurance policy of the same face amount death benefit).

A final option is renewal, but this option is comparatively rarer than the preceding options. Renewable life insurance can be replaced with a life insurance policy of the same type, face amount, and health class. Renewing life insurance spares you the hazard of being assigned to a more expensive health class. However, life insurance rates trend downward so long as life expectancy trends upward, so unless the health of your insured has deteriorated, you may find better life insurance rates by starting the application process anew.

WHO SHOULD GET TERM LIFE INSURANCE?

Term life insurance is not just for bread winners. It is commonly purchased for the following reasons:

• Pay for child care

• Fund higher education

• Cover debts or liabilities (e.g. mortgage, funeral costs)

• Fund a buy-sell agreement for a business

• Protect against the loss of a key employee

• Replace an income stream

If you have children at home, carry debts, or own a business, term life insurance may be a good (and inexpensive) asset to maintain.

 

 

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