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Is Term Life Insurance For You?
While those who own this type of policy know why they purchased it, those who don't still aren't completely clear on what these plans are and how they work. Here are 10 things you need to know before you look into a less expensive term life insurance plan:
1. What is a Term Life Insurance Plan?
A term life insurance plan is very similar to whole life policies with one major difference – the premiums associated with them are generally lower because they only have someone for a certain period (usually 10, 20, or 30 years).
The reason they are only active for a limited time is that the plan typically has no cash value. The company you buy it from invests your money to help pay the premiums. Once the term ends, you'll have to let it expire or purchase another policy if you want coverage past that point.
2. Do You Have To Hold A Term Life Insurance Policy Forever?
No, you don't have to hold onto your policy forever. In fact, this is one of the appeals of these types of policies since after a certain period they cost less and less each year. As long as you keep your premiums updated with any changes in age and health status, there is no problem switching every few years when it's time to renew.
3. Can A Term Life Insurance Policy Be Canceled?
If you have a term life insurance policy, it can be canceled at any point in time. However, if you pay more than 60 days past your expiration date there are typically steep penalties for doing this. The company will keep the premiums paid minus the amount of any claims filed during that period. You'll also lose any death benefits associated with this type of plan unless you renew it within 120 days of termination.
4. What is The Difference Between Renewal and Cash Value?
One question many people have about term life insurance policies is what happens after they expire. When the coverage ends do they just go away or does some money gets refunded to you?
The answer is no. The only money refunded to you is what you paid in premiums minus any claims that have been filed up until that point. Death benefits are usually included with term policies, but they do not carry over into permanent coverage.
5. Are Term Life Insurance Policies More Expensive Than Whole Life?
A whole life insurance plan can be more expensive than a term policy because it has a cash value. This means the amount of premium goes up as your age increases. However, if you don't need this type of protection or would rather put the money somewhere else, term life insurance plans are typically less expensive and very affordable for most people.
6. Do You Have To Pass A Medical Exam To Buy A Term Policy?
Typically you do not have to pass a medical exam to buy a term life insurance plan. They are relatively inexpensive and can be purchased by someone who has pre-existing conditions as long as they update their premiums every few years.
7. How Many Term Life Insurance Policies Will I Be Able To Buy?
You can typically purchase one or two different term policies with the same company. A good number of them will give you up to $300,000 in coverage per each policy before your costs start rising dramatically. If you're looking for more than that it's best to switch providers since many companies won't offer more than $500,000 at any given time.
8. Can You Transfer A Term Policy To Someone Else?
Term policies are designed for the individual who is buying them. Therefore, you cannot transfer the policy to someone else if you happen to pass away while it is active. You can purchase a life insurance rider that will allow your spouse or family member to receive some of the money in case something happens to you so they don't have to pay full price when purchasing their own term life insurance plan.
9. What Is The Difference Between A Level Term Plan And An Increasing Value Life Insurance Plan (Or Level vs Index)?
Both types of plans offer level premiums and death benefits over time, but there are two major differences between these two policies. The first difference has to do with how quickly premiums go up depending on your age. A level term insurance plan will not increase costs over time, but the amount of protection may change depending on any changes in health status. If you don't want to deal with this and would rather pay a flat rate as long as you maintain your coverage, then index life insurance plans offer the same type of benefits over time (see #3, Renewal).
Another major difference has to do with how much value is added to the policy every year. Level term plans keep death benefits at the same level and does not add any cash values or money back into it after a predetermined period like an increasing value plan does (see #6, Cash Value vs Level Term/Index).
10. Should I Life Insurance Without An Agent?
This really depends on the company you want to deal with. Some companies encourage agents to sell their policies while others do not (see #1, Online vs Agent/Broker). If you are interested in finding out about term life insurance quotes without an agent I recommend checking out websites like Getinsured.com or Insure.com for more information.
It’s understandable that the purchase of term life insurance is a daunting task. There are many factors to consider, including age and health status, which can make it easy for someone to become overwhelmed with all of the details. With this in mind, we thought you might appreciate our 10 tips for choosing the right term life insurance plan so you don't have to spend hours researching on your own!
As always if there's anything more specific you would like us to cover or any questions about these points please let us know below. We're happy to help answer them as soon as possible - no matter what time of day (or night) they come up!