How Does Term Life Insurance Work?
Term life insurance is the most straightforward across all life insurance products. Essentially, it is a policy that features a predetermined period for guaranteed coverage. Unlike variable universal insurance, whole life insurance, and universal life insurance policies which are all known to be permanent in nature, term life insurance has an expiration date. Despite this limitation, term life insurance is still the most popular life insurance option in the market as it offers the all important risk protection that policy holders need. Yes, it does not feature the inviting cash value of permanent insurance, but it still serves the function of satisfying claims against the insured in the unfortunate event of death.
Typical Uses of a Term Life Insurance Policy
• It offers to replace income to cover family’s needs
• Pay for death related costs such as covering for funeral expenses and hospitalization bills
• Provides cash out to pay off debts such as those of outstanding credit card debts and auto loas among others
• Offers additional insurance protection during years of child raising
• Provides cash out to pay off secured loans that are long term in nature such as that of mortgages or guaranteed financing for college education
Term life insurance does not serve the purpose of providing income on the long haul, but its coverage is more than enough for beneficiaries who are left behind to get financial security, especially after the first few years or decades of a policy holder’s demise.
Term life insurance is undoubtedly the most popular form of insurance product in the market as it consistently guarantees affordable premiums to its policy holders. It is primarily due to its cheap nature which makes it the more preferred option among first-time policy holders. Majority of insurance companies nowadays offer conversion of policies from term to permanent, thus enabling them to retain their client base. Life insurance rates differ between companies and the only way to check rates is to request for a quote from your list of insurance providers. When you compare rates, it is quite obvious that term life insurance still is the more affordable option and should always be the first consideration before looking deeper into permanent life insurance products.
Term Life Insurance Vs. Whole Life Insurance
You may be wondering why term life insurance is still the better solution if you are trying to save money on the long term. It is true that there is no one-size-fits-all type of insurance policy, but term life insurance can promise policy holders the widest coverage in terms of risk protection and guaranteed death benefits. If this is true, then why is an increasing number of people leaning towards the purchase of whole life insurance?
Whole life insurance is permanent in nature. This means that the premium rate is level during the term of the policy- that which is throughout the lifetime of the insured. There are no expiration dates, thus avoiding gaps altogether. Aside from risk protection, whole life insurance features an investment component which can be in the form of bonds, money-market instruments, or stocks. In short, whole life insurance steadily builds cash value that policy holders can borrow against. You can borrow money at any point in time, thus making it an easy source of funding to the insured. The only drawback from this type of life insurance is that policy holders will need to pay larger premiums in order to guarantee benefits to beneficiaries and well as enough cash to sustain a good investment vehicle too.
Although the concept of whole life insurance seem pleasingly profitable to many, it has several features which make it unappealing as well. Whole life insurance policies are generally expensive. The expensive price might be worthwhile if the money go to good investment vehicles. Sadly, most insurers end up investing money on gestures that only profit for a short time, or worse, not at all. If you are going to forgo term level insurance and move up permanent life insurance, make sure that you are prepared to take risks, if and when the cash value is not as substantial as you may have initially thought.
To be on the safe side, by simply purchase term life insurance, you have successfully eliminated the dilemma of how to save on life insurance. Term life features not only cheaper premiums, but a set of terms and conditions that are easy to follow and understand.
Tips on How to Pick Life Insurance Policies
• Pick a financially sound insurance provider
Before you can even start on checking out life insurance rates, you first have to check on the background and financial capability of the insurer of choice. Whether you are purchasing permanent or term life insurance, you need to make sure that your hard-earned money is being managed by a company that boasts a good reputation through the years. You will need an insurer that will be around for many years to come. This is especially true if you purchased a term policy that you will be keeping in the next 10 to 30 years.
• Shop around to get the best insurance deals
You may have read so many pointers and strategies on how to save on life insurance policies, but the most important tip of all is to shop around prior to shopping. Take time to look at multiple companies. Ideally you will need to choose between five insurance providers. This will enable you to gain better understanding as to which insurer can deliver the widest coverage at affordable premium rates.