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Types of Life Insurance
There are essentially two categories of life insurance, the first
being Term Life Insurance, which is less costly than Permanent Insurance, but has coverage for a limited time. The second category, Permanent Life Insurance, provides coverage that is meant to protect you for life at a level cost.
Term insurance is exactly what it sounds like. It’s insurance that will cover you for a term. The three primary terms are term 10, term 20, term 30. But with the growing demand for term insurance and economic situation
which is forcing applicants to watch there budget, companies are now offering term 15, term 25, term 35, and even term 40. There are even companies that offers you a pick a term option allowing you to pick any term. Alongside the options you have the choice of adding a decreasing option which allows your coverage to decrease along the way thus saving you more money. This perfect to cover your mortgage as your mortgage would be decreasing each year.
Term insurance is used primarily for three things: the first being mortgage protection. Secondly, term insurance is also used to protect families or couples with young children, meaning they would want their children to be protected until they’re 20 or 30 years of age. Term insurance can also be used to protect business and credit lines. If you have a loan that you anticipate paying off in a shorter amount of time, I would recommend using a term 10 or term 20.
Term insurance has several distinct advantages
• Least expensive Life Insurance Product (you can purchase a lot more life insurance for less premium payments).
It is what we call renewable, meaning that you have the option to renew your term insurance for the set amount period of time; for example, with a term 10, you could renew it for an additional 10 years. However, you will be paying a higher price for the renewal, but you will not have to do any medical, and any medical changes or health changes will not affect you from being approved in any way. It’s an automatic renewal regardless of your health situation.
• The other option that you have is what’s called the convertible feature, which allows you, at any point in time before your set expired date, to convert your term insurance into something more permanent, meaning something that will stick with you at the same price for the rest of your life. You can exercise this option without any medical.
• Why convert your Term Life? Well, suppose you get cancer, diabetes or any health related issue. You may not be able to get approved if you ever reapply after your Term Life has expired, or, you may get a rating with a higher premium then initially quoted due to health issues.
Term Insurance Disadvantages
• After the renewal, your rate jumps up exponentially. (4-6 times the initial premium for a Term 10, 6-8 times for Term 20 and 12-15 times the initial premium amount for a Term 30). Example a $50 premium at renewal on a Term 10 would be close to $200 or more.
• These jumps in premiums after the expiration of the initial Term, makes purchasing a second Term Life Policy very costly.
• Term Life Insurance serves its purpose, temporarily, but if you continue to need Life Insurance after the end of the first Term, and your health has drastically changed, your renewal rates will be very high.
• If nothing happens in the Term you get nothing back, but it did serve its purpose by protecting your beneficiaries during that “Term.”
• Term insurance also has what’s known as an expired date, so there is a point in time that it will expire, and that varies with which company you decide to go with.