Most people buy life insurance because of love. They have loved ones who may be affected by their death.
Life insurance can be a huge financial relief for those who lose a loved one and need to pay not only the funeral costs, but all the other daily bills such as the mortgage, credit cards or car payment. Or, you might even be thinking ahead to your children’s college tuition, which can also be paid for with life insurance.
If you’ve been thinking about buying life insurance, you’ve probably noticed that there are two main types of life insurance: term and permanent.
Term life insurance
Value for money
The biggest advantage of term life insurance is how affordable it is.
There is less risk for an insurer because the coverage is temporary. And the younger and healthier you are, the better price you get.
Life insurance prices are fixed when you buy the policy. You don̵7;t have to worry about the insurer increasing rates due to age or health issues.
With term insurance, you choose how much insurance you want to buy and how long you want the insurance to be valid.
Your coverage can be for 10-40 years. However, your age may limit the options for term length. For example, a 60-year-old will not qualify for a 40-year policy.
A longer term means a higher premium. A higher nominal amount (aka coverage amount) will also mean a higher premium. However, it is easy to customize a policy to fit most budgets.
When your term ends, your coverage ends. Policies often have terms of 10 – 40 years.
Term insurance is designed to protect your family if you die prematurely. If you die within the deadline, your beneficiaries receive the death benefit. If you don’t die, there is no payout.
Life insurance is good for those who want to protect their loved ones financially for a certain period of time when you feel that your family would experience the most financial devastation if you were to die. The payout replaces your income and can help your family pay for expenses you are currently taking care of and even future expenses like college tuition.
Ideally, your need for life insurance would end when the term expires. Once your children are grown and on their own and you approach retirement, you no longer need term insurance coverage.
What happens at the end of the semester?
Life insurance is not permanent. The coverage ends when the term you selected is finished. But if you decide you still want coverage, you may have some options.
Many term policies come with conversion and renewal options. Conversion means that you change your term policy to a permanent policy. Renewal means that you continue with the same term for another year.
Your price will increase if you continue coverage.
If you decide to renew your policy at the end of your term, your premiums will be much higher. However, the insurance company will not require you to prove that you are still healthy, so this option is ideal if you become terminally ill.
Instead of renewing the same term for another year, you can choose to join one thermal conversion instead. A term conversion is when all or part of your term life insurance policy is converted into permanent life insurance.
Most term policies allow you to convert to a permanent policy regardless of your health as long as you do so before the deadline for your current policy. However, like renewal rates, your conversion rates will be much higher than your initial terms as you change the type of policy you own. Instead of a temporary policy, you convert to a permanent policy that lasts the rest of your life.
For those who might benefit from permanent life insurance but cannot currently afford the premiums, guaranteed conversion can offer protection along with the ability to secure needed coverage down the road, even if you become physically disabled or otherwise difficult to insure.