Term insurance, as the name implies, provides life insurance coverage
for specific periods of time. Permanent life insurance, on the other
hand, allows you to maintain your policy for as long as you live, even
if this is to age 100.
At the time of purchase you may choose term policies that last for 5 years, 10 years, 15 years, 20 years, 25 years or 30 years. You answer a few health questions to begin the buying process. The company verifies the answers through the Medical Information Bureau, they also request a Prescription Report.
At the end of these specific periods of time, term periods, you can either drop the policy or you may elect to renew it.
If you choose to renew your policy you will usually need to provide proof to the life insurance company that you can still qualify for a policy.
Some term policies have built into it an option which you may exercise which would allow you to convert your policy within specific periods of time.
You would convert to a permanent policy like universal life insurance, variable universal life insurance or whole life insurance. The periods within which you may covert is usually shorter than the term period for the policy itself.
Let us suppose you own a 20 year level term life insurance policy. The contract may state that you must convert within 12 years. Evidence of insure-ability would not be required.
The premiums for term insurance are usually the same for as long as you own your policy, except for those of the yearly renewable term policy. This premium would increase every year for as long as you own your policy.
Term life insurance provides a death benefit which can be paid to your beneficiary in one lump sum or in income form. This is life insurance in it's purest form.
There are no cash values, no benefits to the owner during his or her lifetime. These policies were designed with the survivors in mind.
You would buy a term policy to provide cash for your spouse and children after your death. You want to be certain they can continue living in the style they have become accustomed to.
If you are in business you may buy term policies to fund buy sell agreements in the event of a partners or shareholders death.
Business people may buy term life policies to protect the business should a key employee die without warning.
Choosing Between Term And Permanent Insurance
Because term life is cheaper than permanent life insurance many people choose to start out buying a term policy.
You may choose to keep your term policy and never buy any other type of life insurance. Some people may choose at a later date to convert to permanent life insurance. Why would they do that?
People convert term insurance policies to permanent life insurance for one of 2 reasons. Permanent life insurance lasts for the rest of your life. You may want to be certain that your loved ones are always covered in the event of your death.
In addition permanent life insurance has a cash value. When you add the dividend that a permanent policy may accrue you can eventually recover all the premiums you paid into the policy. Dividends are not guaranteed.
When we think of affordable life insurance, or affordable anything for that matter, we often, mistakenly, think of a product that would require the least cash outlay.
Many life insurance buyers find the 30 year term insurance policy quite attractive. It fulfills their needs. Who, what kind of buyer, would buy the 30 year term policy.
The 20 year term insurance policy is probably the most loved and most bought term life insurance policy. The reasons for this are pretty obvious. People tend to think 20 years when planning long term.