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Introduction to Term Life Insurance

In choosing your life insurance policy, one of your major considerations is choosing between term life and permanent life insurance. Let’s take a look at what term life policy is.

Term life insurance is designed to provide coverage for the insured within a predetermined time frame. Meaning, if the person dies within that specified period of cover, like 20 years for example, the beneficiaries will receive the death benefits. Meanwhile, if the insured lives beyond that period, the contract will cease. In this case, two features could prove useful in order for the contract to proceed, namely convertibility and renewability.

Convertibility is a feature that enables term life insurance to be converted to permanent life insurance of equal value. The upside with conversion is that there’s no more need for another underwriting process or further medical exams to take place. If you can no longer qualify for permanent life insurance because you suddenly became ill, converting your term life policy would be of particular benefit. However, one disadvantage is that your premiums are likely to increase because of the extra cash-value featured offered in permanent policies.

Renewability, on the other hand, lets you extend your policy for a few more years also without repeating the underwriting process. This means that even if you experience changes in your health status, you’ll still be eligible for renewal. You can renew every one, five, ten, or twenty years. However, renewing every so often can be very costly, especially if you are past middle age.

How are Payments Made?

Term life insurance may employ level term, decreasing term, or increasing term coverage in paying out the benefits.

With level term coverage, the amount of death benefits to be received remains unchanged throughout the term. This means that your beneficiaries will receive the same amount whether you die on the second or the tenth year of your policy. The premiums in level term will either remain the same all throughout or increase at a predetermined scheduled rate depending on your policy.

Meanwhile, with decreasing term coverage, as the name implies, the payout of death benefits decreases over the term at a scheduled rate. This means that your beneficiaries will receive a higher amount if you died early in the policy than when you died later. This option might be suitable for parents with children, as the needs of their offspring are bound to decrease as they grow old and have jobs of their own.

On the other hand, with increasing term coverage, the payout of benefits increases over the term at a scheduled rate. This means that if you died during the later years of your policy, your beneficiaries will receive more compared to if you died early in the policy.

Term life insurance sure has its advantages over permanent life, but it has its own negatives as well. In order to make the most out of your insurance policy, make sure you assess your circumstances to avoid paying for more than what you actually need.

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