Term life insurance is the most commonly availed of insurance plan because it is more affordable and convenient. Moreover it can be considered as an inheritance for beneficiaries of the policyholder. It has in fact become the most convenient way of bestowing a legacy to loved ones in the absence of properties or bank accounts in one’s will. Another attractive feature of term life insurance is its constant premium rates that stay the same throughout its duration. It can also be renewed for another period or converted to whole life insurance as the case may be.
One of the setbacks of term life insurance is its expiration date. When it has reached its end, it can no longer take effect, hence the insured person needs to either renew it for another term or convert it to a permanent life insurance policy. Most people holding a term life insurance plan, whose financial status has improved over time, opt to convert their policies to whole life insurance policy. This said type of insurance is actually a lifetime protection for the insured and his beneficiaries inasmuch as the plan is effective until a policyholder reaches his 100th year, or his death.
Availing of affordable term life insurance policy
Although Term Life Insurance policy is relatively cheaper than whole life policy, not everyone can afford to buy a plan. More often, some individuals prefer to just save their money in the bank than pay for premiums that cannot be reimbursed to them anyway at the end of the term. Nonetheless, many policyholders still concur that having a minimum life protection for a certain term works better than having none at all. Besides, the costs of premium depend on the face value of the policy. If you cannot afford to pay higher premiums, then you might as well settle for a cheaper plan. Here are suggestions on how to avail of affordable term life insurance plan.
- Talk to an insurance agent and inquire about the different options for term life policy. Try to grasp the details of each type of plan and make mental comparisons on their features, advantages and disadvantages.
- If the insurance agent can provide you with a table of premiums, ask for one. Take note of each one and come up with a short list of possible options.
- Note the amount of premiums and the amount due your beneficiaries in the event of your death. Usually, the premium is computed against the face value of your policy. The bigger the face amount, the higher the premium goes.
- Keep your body in top shape. When you have an illness, extra cost will be added to your premium. Insurance companies want their policyholders to have the least mortality risk as much as possible.
- Stretch the coverage period to as far as you can afford to pay the premiums. Some term policies are good for six months, one year, two years and so on. To avoid the repetitive act of renewing your policy, try to avail of a longer coverage term. The premiums may stay the same and you are covered for a longer period of time without worrying about the expiration date and renewal or conversion for other plans.
Advantages and disadvantages of life term insurance
The cheaper premiums required by term life insurance remain to be the main factor why more people are availing of this policy. To look at the term on a more level viewpoint however, the advantages and disadvantages of term life policy are presented here.
- Advantages. Term life insurance is cheaper and fits the need of people with smaller budgets. On the other hand it can serve as endowment to loved ones in lieu of inheritance in the form of property or bank accounts. Renewal is not a problem toward the end of its term because your insurance agent will certainly be happy to assist you. Term life insurance policies are also adjustable and can be converted to permanent life insurance.
- Disadvantages. There are instances when term life insurance policies cannot be renewed. Sometimes when they are allowed for renewal, the premiums are increased. This is true with policyholders whose life risks may have increased with regard to their health or living conditions. One more disadvantage of life term insurance plan is that you do not get to enjoy the proceeds of your insurance because by the time the payment becomes due, you are already gone. The cash out pay is handed to your beneficiaries and as they are the ones directly benefited from your insurance proceeds viagra soft g. And yet they benefit only at the time of your death. Hence when the policy reaches the end of its term and you are alive, the beneficiaries do not receive anything.
Classifications of term life insurance
Life term insurance policies have various classifications.
- Convertible term life insurance
- Return of premium term insurance
- Mortgage term life insurance
- Increasing or decreasing term life insurance
- Renewable term life insurance
- Level term life insurance
Convertible term life insurance
This type of term life insurance provides the policyholder the chance to convert the face value of his plan. From term insurance, he can apply for a permanent life insurance without having to go through the basic processes of proving that he is insurable. There are no extra fees to be paid either except that the premiums may be adjusted to correspond with the type of policy. Usually term life insurance is converted to whole or permanent life insurance in which premiums are higher. With the said conversion, adjustments are made on the face value, premium rates, periods of payments and maturity date of the policy.
Return of premium term insurance
Likewise known as ROP term insurance, it offers two options to the policyholder to avail of either return of the premium contributions or death benefit. Unlike in ordinary term life insurance plans, ROP term is very convenient because the policyholder gets a full reimbursement of all his premium payments. With the former, the insured person and his beneficiaries do not get anything when the policy expires and the condition of death is not met. With ROP term, the receivable amount is tax free and should the policyholder decide to end the policy before its maturity date, he can get a refund of his premiums as long as he has already paid a considerable amount. Premium rates with ROP term insurance remains the same throughout the period of its coverage. One setback however is that the refundable premiums do not include the additional rider and health fees which have already been paid as well. There is no payment of accumulated interests either, unlike in Whole Life Insurance policies which provide dividends.
Mortgage term life insurance
The difference between a common term life insurance and mortgage life insurance is that with the former, the proceeds of the insurance are paid to the beneficiaries while with the latter the cash out payments are issued to cover payments of the policyholder’s debts. Decreasing term insurance is a type of mortgage term insurance wherein the face value of the policy decreases while the outstanding loan of the plan holder likewise decreases. The ratio continues to go down until such time that the amount reaches zero and the debt is fully paid while the borrower is still living. On the other hand, level term insurance does not decrease in size and the premiums remain the same over the given period. This is applicable for loans with mortgages that are based on interest payments only.
Increasing or decreasing term life insurance
This type of term insurance involves an increase or decrease of premiums and benefits. An increasing term policy is where your premiums increase over a period of time and at the same time the benefits increase as well. The increase is set at two percent to 10 percent depending on the contract of agreement of the policy. At first glance, this policy type looks interesting however there may come a time when the increases in premiums and benefits do not correspond with each other in that the premiums are higher than the potential benefits.
Decreasing term life insurance on the other hand is also called mortgage protection insurance. The purpose of this insurance policy is to cover for the unpaid debts of a person at the time of his death. The premiums and face amount of the policy decreases until the whole loaned amount and its interests are paid in full during the lifetime of the policyholder. In the event of his death, whatever remaining due amount on his debt is covered by his life insurance policy. When the policyholder dies, the beneficiaries receive whatever excess amount is derived after the loan has been paid in full.
Renewable term life insurance
This is commonly availed of by policyholders at the end of their term life insurance. They can apply for another term of coverage either for the same amount or higher. The advantage of this type of policy is that the insured person need not go through the basic steps in applying for insurance coverage. Aside from updating his record by answering certain questions on his health condition, the procedure in renewing a term insurance is very simple. The most common type of renewable term life insurance has a yearly coverage in which it has to be renewed annually. However there are longer terms that cover five to 30 years of protection with guarantee of level premiums that do not increase over the whole period of coverage. Renewable term life insurance is free from tax as well. It can also be converted to whole and permanent life insurance. Investing your money on this type of policy also has its disadvantage in terms of its accumulated cash value. There are no interests or dividends to expect whatsoever.
Level term life insurance
The premiums for this type of term life insurance remains constant over the coverage period agreed upon. Nonetheless this policy has many uses including coverage for critical illness in which the policyholder gets compensation if he is diagnosed with a terminal disease with less than one year survival expectancy. This type of policy is fixed and non-convertible and the terms can no longer be adjusted. It also expires if the premiums are not paid on time.
To avail of affordable term life insurance, you need to evaluate all the available options. Go over the features of each type of policy as well as their advantages and disadvantages. Only your insurance agent can provide you with thorough discussions about the available choices. It is up to you to decide which one to pick. At any rate you must consider your capacity to pay first so that you will be able to sustain the premium payments as well as renew the plan when it expires. Some people have the bad practice of buying insurance policies only to fail to maintain the payment of premiums, which then results to the termination of the coverage.