Features of term insurance.
Term insurance is a cost effective way to cover the financial survival of your young family. At a younger age a couple may be at the lower end of the income scale. So they may not be able to afford the permanent type of life insurance policy. Term insurance can fill the need for a large amount of coverage at a reasonable cost.
Term insurance may be used as Mortgage insurance or Loan insurance
It can cover the mortgages, personal or business loans, and other liabilities. It can also be used to cover car/ truck loans or credit card loans. Business partners may use term insurance to cover the estimated future value of a business buy/sell agreement. Buy/sell agreements will be discussed in more detail in other articles.
It can be used to replace income of the working spouse
Term insurance may be used to cover the income that the bread winner(s) earn. Because term insurance is so inexpensive to buy, both spouses can get cheap insurance. It is very easy to calculate how much insurance to buy based on one’s income, assets and liabilities. This calculation is a simple needs analysis the is very easy to do.
Term insurance can be Renewable:
If you need to keep the insurance beyond the end of the term it may be renewable for another term depending on your age. But if you are still in good health, you can replace it with a new term policy. A replacement term policy will cost lot less than the cost of renewing current policy. There are some other conditions to consider when replacing an insurance policy.
Term insurance can be convertible:
Yes it can be convertible to a permanent plan. Let us say that you bought a term policy to keep your premium at an affordable level. But now you can afford a higher premium because you got better job or some other reason. Now is a good time to convert to a permanent insurance plan. Then you won’t have to worry about the cost increasing at the end of every term.
Main feature in permanent life insurance is that its premiums will stay the same for life of the policy.
Permanent life insurance may have built in investment features. They may have guaranteed cash values and dividends etc. There are several types of permanent life insurance plans. We will cover more details of permanent insurance in other articles and videos. You may have the option to convert your existing policy to a permanent life insurance plan before the conversion expiry age.
Layering of various terms:
There is also the option to layer different terms in the same policy. That can help control your cost and increase the longevity of your policy.
For example let us say that you need a million dollars of life insurance now. You have a huge mortgage and a young family that needs to be looked after in case of your death. But as you pay down your mortgage and as your kids grow older, your need for insurance is reducing.
So in a layered structure you may have $250,000 each of 10, 20 and 30 year term and the final 250,000 of permanent life insurance. This way you can drop or cancel the term that is coming to the end. This helps reduce your cost.
It is also very important to learn about critical illness insurance before making any decision for how much and what type of insurance to buy. test 123
This page explains in more detail about how need for life insurance is calculated.
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