Young people are always being advised by their elders to save and set aside some money for the future. They are also told to invest, especially in time deposits, mutual funds, high-earning stocks and life insurance. But can you afford to fork out money, month after month, to pay for a lifetime premium? Are there any other types of short term life insurance available?
Life insurance is, put simply, a financial package designed to protect those who depend upon you for monetary support. A life insurance policy is a legal contract. Within it are terms and conditions of the risks assumed. Any misrepresentation by the policy holder or the insured will be grounds for nullification of the insurance.
In the case of term life insurance, there are three important aspects to remember: the policy is for the life of the person insured; the payout is assured for a specified number of years and for a specified premium; and the policy does not accumulate (or accrue) cash value.
How does this compare with permanent life insurance? Because term life insurance is taken out only on the insured’s death, term life insurance is eight to ten times cheaper than permanent life insurance.
There are three factors to be considered if you are thinking of buying term insurance. These are the face amount or the monetary value of the protection which your beneficiaries will receive; the premium or the amount you have to pay as owner or policy holder; and the term or the length of coverage of the insurance. Insurance companies will sell term insurance with combinations of these three aspects, along with a constant or declining face amount.
Before you consider purchasing a term life insurance, you should be be well acquainted with what’s called the Theory of Decreasing Responsibility. Remember that insurance is purchased because the insured would like to have fewer financial burdens in the future. The theory assumes that the insured will always prefer liquid cash (that is, constant income from investments) rather than insurance with a monthly premium.
One kind of term life insurance is the annual renewable term. This is a one year policy, where death benefits are paid to the beneficiaries by the insurance company if the insured dies within the period of one year. Death benefits will not be paid, however, if the insured dies a day after the last day that the one year term expires.
However morbid it may sound, the probability of anyone positively dying in the period of one year is low, unless the policy holder plans to commit murder or stage a suicide. Thus, purchasing a single year of coverage is not usually done, as it is not cost effective.
What policy holders do, however, is renew the insurance after another year or purchase policy packages that guarantee that the policy will still be in force year after year, for a given period of time. Insurance companies have packages that renew the annual term life insurance for periods that vary from ten to thirty years or until the policy holder turns ninety-five. As the insured person gets older, however, premium payments also increase, until they approach the face amount.
Another type of term insurance is referred to as level term. In this term policy the premium being paid is the same for a specified period of years. Common time frames for paying level term insurance premiums are ten, fifteen, twenty and thirty years. The amount of money to be paid each year is the same; the longer the term, the higher the premium that has to be paid, since premiums are more expensive as you get older. One well known type of level term life insurance is mortgage insurance, which has a declining face value.
A newer type of term life insurance is juvenile insurance. This insurance package is purchased for minors, often as a gift from their parents. It is designed for children from the ages of fourteen days to as old as twenty three years and will usually cover financial expenses incurred due to illness, injury or death. Death benefits from this insurance will remain level until age twenty five.
What makes juvenile insurance a type of term life insurance? Children who are insured under such a policy may choose to convert their coverage to permanent life insurance, when they are earning their own income or when their elders rely on them for financial support.
If you think you want to know more about term life insurance, consult your independent insurance agent, as there are many more kinds of term life insurance packages available and one (or more) of them may greatly benefit you.