Securing Your Future with Term Life Insurance
Of the many types of insurance products or pre-need plans, what people really need the most is term life insurance. Before you contact your broker or agent, it would be a good idea to learn about term life insurance first. In gaining an understanding of what this particular insurance product is, it can be differentiated with another popular insurance product, the whole life insurance.
Term Life versus Whole Life
Simply put, a term life policy covers only life insurance. Upon the insured’s death, the policy will pay the face amount in the policy to whoever is the named beneficiary. Term life can be bought from a period of a year to 30 years. On the other hand, whole life is term life plus an investment component. The investment portion of the policy can be in the form of negotiable instruments, stocks or bonds. This policy accumulates value and the insured is allowed to take out funds from it.
Whole life plans are pricey because of the investment part. Agents market this product like a retirement plan. Its downsides are the high commissions and fees plus the uncertainty of the actual investment return or the part of the premium that goes to the life and the investment part of the policy. The premium for term insurance is really affordable especially if your health is good. After the age of 50 though, the premiums increase. Most insurers do not offer term life to people over the age of 65.
Credit Worthiness of Your Insurer
Experts believe that a term life policy will only make sense if kept for 20 to 30 years. If you are planning on keeping your policy this long, then a major concern would be the financial stability of your insurer. You want to be sure that your insurer will be around for the long haul and a way to do this is to bank with a company that is high on the list of credit agencies in terms of their rate against claims and paying ability.
It is a good thing that the credit worthiness of insurance firms is available over the Internet for free or for a minimal fee. It is best to get this information from a third party or a credit rating agency than from the insurance companies themselves. When reading a rating report, you want to look for insurers with a triple A rating.
There are a handful of websites that offer good information on and rating for insurance companies. Ratings are usually offered for free but if you want a detailed report on a certain company, you may have to pay for it. You have to make sure that the report you are reading is current or at least culled in the last six months.
Uses of Term Life
Term life insurance is purely a death benefit so its main use is to cover the monetary responsibilities of the insured and his beneficiaries. Some of these financial responsibilities may include debts, dependent care, tuition fees, mortgages or funeral expenses. Financial consultants recommend a term life policy to cover perceived expenses until sufficient funds are available for the protection of those whom the policy meant to protect.
The most basic type of term life runs for a year. Death benefit would be paid out by the insurer if the policyholder died within the year of coverage. Premium is based on the projected probability of the policyholder dying within the year.
The more common type of term life plan is the guaranteed level premium life insurance. This means that the premium will be the same for a fixed period of time. People purchase life term policies with periods of 10 to 30 years. Under the guaranteed level type of term life the premium is the same for the period selected by the insured. It is based on the computed cost of every year’s renewable rates plus a time value of money adjustment set by the insurer. The longer the term of the policy is, the higher the premium will be as insurers will account for the advancing age of the insured and all the attendant factors that will contribute to the increased risk of death.