Term Life Insurance Made Easy
Posted on November 27, 2007 in the Money category
.What is Term Life Insurance
Term life insurance is the least expensive life insurance product available. As the name implies, Term insurance is insurance that is purchased for a particular “term” or length of time. This term can be as short as one year and as long as twenty years. Once the term ends, so does the life insurance coverage.
Types of Term Insurance
There are three main types of term insurance. They are:
Annual Renewable Term (ART):
As the name suggests, this insurance policy is for one year at a time. Every year you renew the policy, the annual premium goes up because as you get older you become more likely to die. This type of policy is while very inexpensive when you are in your 20’s, becomes very expensive as you get older. Thus it is most commonly bought by individuals in their 20’s and 30’s.
Level Term:
Level term insurance has the same annual premium for the length of the policy, which can be 5, 10, 15, or 20 years. When you renew the policy at the end of each term, the cost will increase dramatically over what you were paying. However, it stays at this new level until the end of the next period, when it increases again. The death benefit however remains the same throughout the policy unless you elect to choose a lower face amount at renewal. Over the long run, Level Term is less expensive than ART and is the best choice for most people.
Decreasing Term :
Decreasing term insurance is the opposite of ART: Instead of the premium increasing each year when you renew the policy, with Decreasing Term, the premium stays the same and the death benefit decreases. This type of policy is aimed at someone who needs a lot of insurance for a limited time only. Such us a father who wants to make sure that if he dies, his children will have enough money to go to college. When his children graduate from college, then his need for a lot of insurance decreases.
What Term Insurance can do for you
Term insurance is bought by millions of people for a number of reasons. Families use Term for security. In case the insured passes away, your Term policy insures there will be money to use to pay for your home, college, outstanding loans and other major expenses.
Business Partnerships often use term insurance to buy out partners in the event of their death. For example, the deceased’s beneficiary gets the insurance proceeds and the ownership in the company is then transferred to the remaining partner(s).
How Much Do I Need?
Most financial planners say that you need insurance coverage of between 5 and 8 times your annual income.
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