There are a few
main reasons for buying term life insurance depending on the length
of time that most fits your needs.
5 Year – The
more specific your need for insurance is, the shorter the term period
should be. For example, if you have a child going to college for four
years and no need for the insurance after, a 5-year term may be right
10 Year –
A 10-year term period works, for example, if you are a business owner
with a key employee that you want to cover with life insurance but don’t
expect the employee to stay in the same position.
15 Year- Many families
choose 15-year term policies to replace one or both of the parents'
income(s) in the event of death. This is especially useful in households
where the children will be self-supporting before the 15-year term has
expired, or your home has a 15-year mortgage.
20 Year- A 20-year
term is a very common choice for people seeking longer-term coverage
because of the cost-effective nature of the premiums. The total premium
on a 20-year policy generally costs less than purchasing a 10-year policy
and keeping the same for an additional ten years. If you have young
children at home, a 20-year term policy could be the right choice for
seeing them through their college years.
30 Year- This is
a good choice for people with a 30-year term mortgage. The life insurance
policy can cover the entire period to alleviate the burden of mortgage
payments in the event of your death.
What Do I Do When My Term Period Ends?
The insurance company
will contact you to tell you that the policy is about to expire and
provide you with three options.
Keep your existing
policy - You can still pay on the existing policy after it expires.
It will automatically continue as an extension of your existing policy.
If your health is bad, you will not need to provide medical evidence
of your insurability. However, with this option, the policy likely becomes
annually renewable so the premiums will increase every year.
Get a new policy
- Depending on your age and health, you can apply for a new policy with
either your existing company or a new company. The new policy replaces
the former policy but be careful when doing this because new underwriting
requirements must be met. Be sure to keep your old policy in force until
you know the outcome of your new application. If your health has deteriorated
you might face higher premiums or even be refused coverage.
Convert to a permanent
policy - You can convert your policy to a Permanent Life Insurance policy
and lock in your premiums at a higher level for the rest of your life.
provides lifelong protection. As long as you pay the premiums, the death
benefit will be paid. These policies are designed and priced for you
to keep over a longer period of time.
include: whole, universal, and variable life. Unlike term insurance
policies, most permanent policies have a cash value to provide you with
the following options:
- You can cancel
all or part of the policy and receive the cash value as a lump sum.
If you surrender the policy early on, there may be little or no cash
- If you stop paying
the premiums, you can use the cash value to continue your current insurance
protection for a specified amount of time or to provide a lesser amount
of coverage over your lifetime.
- You can borrow
from the insurance company, using the cash value as collateral. Unlike
loans from most financial institutions, the loan is not dependent on
credit checks or other restrictions. You must repay any loan with interest
or your beneficiaries will get a reduced death benefit.
With all types of
permanent policies, the cash value is different from the policy’s
face amount. The face amount is the money that will be paid at death
or policy maturity. Cash value is the amount available if you surrender
a policy before its maturity or your death.
There are three
main types of permanent insurance:
- Whole life is
the most common type. Premiums generally remain constant over the life
of the policy and must be paid periodically in the amount indicated
in the policy.
- Universal life
allows you, after the initial payment, to pay premiums at any time,
in varying amounts, subject to certain minimums and maximums. You can
increase or decrease the death benefit more easily than under a traditional
whole life policy.
- Variable life
provides death benefits and cash values that vary according to the performance
of a portfolio of investments. You can allocate premiums among a variety
of investments including stocks, bonds or guaranteed interest accounts.
- Protection is
guaranteed for life as long as premiums are paid
- Premium costs
can be fixed or variable to meet personal financial needs
- You can accumulate
cash value, tax deferred
- The policy accumulates
cash value that can be borrowed against to pay premiums
- Cash value can
be partially or totally surrendered for cash or converted into an annuity
- Minimum premium
levels can make it difficult to buy enough protection
- Permanent insurance
may be more expensive than term insurance if it is not kept over a long