The Best Term Insurance Plan
Term life insurance is a type of life insurance coverage that you can purchase to insure your life for a short period of time. Term life may be paid annually, four times per year or monthly. There are two basic plan types for you to choose from, so you should understand the best term insurance plan for your situation.
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Annual Renewable Term
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Annual renewable term life insurance is coverage that renews every year up to age 85. Annual renewable term life premiums increase with each renewal. This is because all premium dollars go toward supporting only the immediate cost of the death benefit, which increases as you get older and closer to death.
Level Term
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Level term life insurance increases the premium charged for the same death benefit as under an annual renewable arrangement. However, the excess premium is invested in anticipation of rising insurance costs. As the cost of insurance increases, the insurance company uses the excess premiums to hold down the premium cost to you. The result is that rising insurance costs do not cause the premium to increase every year. Instead, the premium remains flat, or "level."
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Benefits
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The benefit of annual renewable term life is that you are not committed to your insurance policy for more than one year. Your costs are lower than with a level term policy since the premiums for a level policy are based on multiple years of coverage. The benefit of a level term life policy is that it allows you to budget your life insurance costs many years in advance. You know for certain what those premiums will be.
Considerations
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When deciding on which type of policy to choose, consider your financial goals. An annual renewable policy's cost increases as you get older. However, in the early years of the policy, the premiums will be lower than with a level term policy. If you only need your policy for a very short period of time (i.e., five years or less), consider an annual renewable policy. If you plan on carrying your policy for a longer period of time, then a level term policy is more economical.
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