Understanding The Ins and Outs of Term Life Insurance
Are you considering purchasing term life insurance? If so, it is important for you to gain a good understanding of how this type of insurance policy works. This way, you can be sure to purchase the term life policy that best suits your individual needs.
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The Basics of Term Life Insurance
Unlike whole life insurance, which are also referred to as permanent life insurance, your term life insurance policy does not build value as the years pass by. Rather, you pay a predetermined premium every year in order to provide your beneficiaries with a predetermined benefit amount if you pass away.
Since term life insurance policies do not increase in value, they are less expensive to purchase than whole life insurance policies. As a result, you can afford to purchase a greater benefit amount when you choose to go with term life insurance. At the same time, it is important to note that your insurance policy will no longer be valid at the end of its term and, depending upon your situation at the time, obtaining a new policy may be difficult if not impossible.
Determining the Number of Years You Need
Term life insurance policies are available for a number of different specific time periods, typically ranging from just one year to thirty years. While the majority of people purchase these policies for ten or twenty years, you need to consider your personal situation in order to determine the number of years that you need your policy to be in place.
When determining how many years you want the policy to remain in place, it is important to consider a number of different things. First, remember that the policy is worth its value regardless of when you pass away. Therefore, whether you pass away a week after getting the policy or ten years after putting it in place, the benefit will be the same. This means you need to consider the current needs as well as the future needs of your beneficiary.
It is also important to remember that the policy will no longer be in place once the term has expired, which means your beneficiaries will not receive any payout at all of you do not pass away while the policy is in place. As such, you want to be sure to have the policy in place long enough to provide your dependents with the financial support they will need now as well as in the future.
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Selecting the Right Type of Term Life Insurance Policy
When obtaining a term life insurance policy, it is also important to become familiar with the standard features that are found with these types of policies. One of these features is referred to as the "level," which is in reference to the amount you pay each month to maintain your policy. With a level policy, you pay the same amount each month for the lifetime of the policy.
Another feature you might want to look for in a policy is whether or not it is convertible. If a policy is convertible, you will have the option to convert the policy into a permanent policy once the term has expired. In most cases, you will have this option for a few years before the policy expires. When deciding to make the conversion, however, you will likely see an increase in your premium costs.
In addition to selecting a policy that is convertible, you might also want to look for one that is renewable. With a renewable policy, you will be able to renew the policy after the term has expired. In many cases, however, there will be an age limit with this option, as many companies won't allow you to renew your policy once you are 65 years old or older. Even if you are able to renew the policy, your premiums will likely increase.
