If you have financial obligations and a family to support, you should consider buying life insurance. With term life insurance, you are able to insure your income in the event that you die. Additionally, term life insurance is a low-cost alternative to permanent life insurance. How much you pay for your insurance depends on a variety of factors.
There are two types of term life. The first type is annual renewable term life insurance. This is sometimes referred to as "ART." The other type is level term life insurance. With level term life insurance, there are several sub-types, including guaranteed level term, non-guaranteed level term (premiums generally stay level but are not guaranteed to do so), decreasing term life insurance (the death benefit decreases every year on a set schedule), and term with return of premium.
Annual renewable term life insurance has premiums that are not fixed to provide a level death benefit. The premiums charged by the insurer directly support the death benefit. Level term life insurance uses a premium structure that inflates the true cost of insurance. The excess premium that does not directly support the death benefit is invested to hold down the future rising costs of insurance. Premiums for both policies are determined by your health, age and lifestyle. Because of this, premium costs will vary, sometimes significantly, from person to person.
The premiums for ART policies are cheap in the early years of the policy. The premiums for level term life insurance are consistent and level. The level premiums allow you to budget for the premiums for the entire term of the policy. With some types of term life insurance, like term with return of premium, you even get a refund of all of the premiums you've paid over the years.
Term policies do not extend beyond 30 years, making term life insurance temporary. This is a disadvantage if you need life insurance beyond age 65. While you can purchase life insurance after this age, premiums are generally prohibitively expensive. Unless you get a special return-of-premium-type term policy, premiums paid will be effectively wasted if you live beyond the term of the policy.
The biggest consideration when buying term life insurance is cost. Term life insurance is often sold as a commodity product. However, consider spending additional money for a term policy that offers benefits like a return of your premium. The return of your premiums can be used after the end of the term to purchase another term policy or they can be used for investing.
- "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
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