Term Life Insurance: Definition, Benefit, and Comparison

Term Life Insurance Definition

What is Term life insurance? There is many variation of term life insurance definition pros cons. But I will make a simple explanation so it would be easy to understand. Term life insurance which is also known as pure life insurance, is a life insurance that will guarantees the payment of death benefits over a period of time. After the term expires, the policy holder can extend the life insurance for another period of time, convert the life insurance to permanent coverage, or let the life insurance policy to expire. Term life insurance policies provide benefits stated at the time of death of the insured, provided that the death occurs within a certain period.

Term Life Insurance: Definition, Benefit, and Comparison

Term Life Insurance Break Down

If you still don’t know what is Term Life Insurance Break Down, and still asking ‘What is the purpose of term life insurance?’. I will explain it to you. The policy of term life insurance has no value other than guarantee of death benefit. There are no savings component, except as is found in all life insurance products. The policy objective is to provide insurance to individuals for loss of life. All premiums cover the insurance costs. And the result, premiums life insurance are usually lower than premiums permanent life insurance.

Characteristics of Term Life Insurance

The basic of premium term life insurance is based on the health, age, and life expectancy of the person. And all of those are determined by the insurance company. If the person dies within the specified policy period, the insurance company will pay the nominal value of the policy. But if the life insurance policy expire before the death of the policy holder, there is no payment. Policy holders may be able to renew their term of life insurance policies when they expire, but their premiums will be recalculated for the age they have reached.

Because the life insurance offers benefits for a limited time and only provides death benefits, life insurance is usually become the cheapest life insurance available. A healthy 40 year old and non smoker person, usually can get a 25 year premium life insurance policy with a nominal value of $ 300,000 for around $ 25- $ 30 per month. But when you buy a lifetime equivalent, you will have a much higher premium, maybe around $ 250 - $ 300 per month. Because most of term life insurance policies will expire before paying death benefits, the insurer  would take overall risk which is lower than the permanent life insurance policy. Risk reduction allows the insurance companies to provide cost savings to customers in the form of lowering premiums. And the Characteristics of Term Life Insurance is different with Characteristics of Whole Life Insurance.

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To make it easier to understand, I will give a simple explanation. There is a man, called John, who is 35 years old. And he wants to protect his family in the unlikely event of his early death. Then he buy a $ 400,000 ten year life insurance policy, and he get the premium for $ 40 per month. If John dies within 10 years, the life insurance policy will pay John for $ 400,000 beneficiary. Or in other case, John did not pass and now he is 45 years old. His life insurance term policy has ended. If he chooses not to extend his life insurance policy, and then he dies, his beneficiary would not receive benefits. But if he decides to renew the life insurance policy, the new policy will base the premium at his current age, 45 years.

Term Life Premiums Explanation

Age, gender, and health of the insured, are the main determinants for calculating policy premiums. Depending on the amount of face of the life insurance policy, a medical examination may be needed. And other common factors are the family history, driving record, employment, smoking status, and hobbies of the insured.

The Premium Life Insurance is the level for the duration of the contract. However, life insurance costs would increase because the life expectancy of the insured decreases. After the renewal of the life insurance policy, the policy holder will realize a significant increase in premiums from his insurance. And based on actual data that I got, the average of life expectancy in the US is around 78.85 years. Therefore, a 20 year old person who has the remaining life expectancy of 58.85, when compared with a 50 year old person with a remaining life expectancy of 28.85 years. The risk of taking insurance for a 20 year old child is less than the risk of protecting a 50 year old person.

The state regulations , rates of the interest, and insurance company finances can also affect the life insurance premiums. In general, insurance companies often offer better rates at "breakpoint" coverage levels of $ 200,000, $ 350,000, $ 600,000 and $ 1,000,000. But it maybe a little bit different for each insurance company, but that won't be a lot difference.

3 Types of Term Life Insurance

Types of level term life insurance, or the premium level policies provides coverage for certain periods from between 10 until 30 years. Both of the death benefits and premiums are fixed. Because actuaries must take into account for the increase in insurance costs during the validity period of the policy, premiums are relatively higher than term life insurance which can be renewed annually.

And for your information, the Yearly Renewable Term (YRT) policy does not have a certain period of time, but it can be extended annually without requiring proof of insurance every year. First, the premiums wodul be low, but as your age grow older, the premiums would increase. Unfortunately, because there is no specified term, premiums can be very expensive as individuals age, and make this policy choices that do not appeal to many people.

The term reduction policy has a death benefit that decreases every year according to a predetermined schedule. Policyholders have to pay a fixed, premium level for the duration of the policy. The term decreasing policy is often used in conjunction with a mortgage to match coverage with a declining home loan principal.

Benefits of Life Insurance

If you still wondering what are the advantages of term life insurance quizlet? This is what you need to know. Sometimes, term life insurance is looked more attractive for young couples with children. Because the parents can get large amounts of protection at a relatively low cost. After the death of the parent, the significant benefits can replace lost income. The term life insurance are also suitable for people who temporarily need an amount of life insurance. In these cases, policyholders believe that those who survived will no longer need additional financial protection, or they will accumulate enough liquid assets to insure themselves.

Term vs ‘Permanent’ Whole Life Insurance Pros And Cons

This is the answer for term vs whole life insurance suze orman. The choice between a permanent life insurance policy and a cash value (term life) insurance product such as a lifetime or universal life and the validity period of life insurance depends on the circumstances and needs of the policy holder. Some people think that term life policies are ideal for people who want substantial protection at low costs. For lifelong customers have to pay more in premiums for less coverage, but they are have the security of knowing that they are protected for life.

While many buyers like the affordability of the time life insurance, not having benefits after the expiration of the term, and paying premiums for long periods of time, are considered as unattractive features. After the renewal, life insurance premiums increase with age that getting older, which can make the cost of new premiums become more expensive. In fact, the renewal of life insurance premiums may be more expensive than permanent life insurance premiums would have been on the issue of term life insurance policies for a long time.

Some customers prefer to choose permanent life insurance, because the policy of permanen life insurance can have an investment or savings vehicle. Some of each premium payment is allocated to cash value, which may have guaranteed growth. Some packages pay dividends, which can be paid or stored in the policy. Over time, the growth of cash value may be enough to pay premiums to the policy. There are also some unique tax benefits, such as the growth of deferred tax cash value and tax-free access to the cash section.

My friends who was become Financial advisors, warn me that the growth rate of cash value policies is often trivial compared to other financial instruments, such as Exchange Traded Funds (ETFs) and mutual funds. Also, substantial administrative costs often hinder returns rate. Therefore, the common phrase said "Buy the term and invest the difference." However, the performance is stable and taxable.

Unfortunately, there is still no one size answer for which is better for the term life insurance vs permanent life insurance debate. But there is 5 other factors to consider, include:
Is the rate of return that we could earned from the investment is feasible for the client?
Will this investment be a traditional or a plan that meets the requirements, and will there be a contributions that are in line with the employer sponsored plan?
Is there any loan terms and other features in permanent life insurance policy?
Does the policy holder intend to own a business that needs insurance protection?
Will life insurance play a role in protecting taxes from substantial assets?

Convertible Term Life Insurance Pros and Cons

Renewable Term Life Insurance or Convertible Term Life Insurance, is a term life insurance policy that includes conversion for drivers. The driver guarantee the right to change the applicable time period policy, or policies that will expire, become permanent plans without going through underwriting or proving insurance. The conversion driver must allow you to convert to the permanent policy offered by the insurance company without limitation.

The driver's main feature is maintaining the original health rating of the term policy at the time of conversion, even one day if you have a health problem or become insured, and decide when and how much of the coverage to convert. The basis for a new permanent policy premium is your age at conversion.

And of course, because lifetime insurance is more expensive than life insurance, the overall premium will increase significantly. The advantage is an agreement that is guaranteed without a medical examination. And if the medical conditions that develop during the term life insurance period, it cannot adjust the premium upwards. Still, if you want to add a new drivers to new policies, such as long-term care drivers, the companies may require limited or full underwriting.

That's the definition, benefits, and comparison of Term Life Insurance. If there is somethings that you still don't understand, Feel free to ask in the comments section.

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