What is Term Life Insurance?
Term life insurance is basically a ?no frills? type of life insurance. It is a life insurance for a specified duration limit, or time. You buy a specific amount of coverage for a specific time period by signing a contract. You pay for that coverage period and at the end of the term the policy expires. For example, the term might be until retirement, or until children are grown, or until college is paid for.
Term life insurance is the least expensive available insurance policy and allows you to spend a lot less and use the extra money in a better investment. It does not build up cash value and the premium normally increases as the policy owner gets older. Usually term life insurance covers
a specific term such as term of 1year, term of 20 years or term of 30 years.
If you die while the policy is active, term life insurance provides a stated benefit for it; and your survivors will be paid the agreed upon amount. However, the policy does not provide any returns beyond the stated benefit and once the policy expires, the insurance coverage ceases and the insurance company keeps the money. Some term insurance policies give you the right to renew at the same rate for multiple years, while others do not. The former are generally a bit more expensive.
Term life insurance is most suitable for you, if you are:
? in need of coverage for a limited period of time,
? young and looking for lower premiums,
? buying a home or car, where the financial burden of a loan will disappear in time.
Term life insurance policies must be renewed when each term ends. Before buying a term life insurance policy, you should ask about the renewal provisions for the protection of your future insurability. There are some typical choices:
? Annual Renewable—–the premium go up each year.
? Level Term—–the premium stays the same for specific period like 5, 10, 15, or 20 years, then increases sharply.
? Automatic Renewable—–you’ll have to pay more for this feature.
Some other options on term life insurance policies may include:
? Re-Entry – it requires a lower premium than an automatically renewable policy. You can renew at the same low rate offers to new customer; but you’ll have to pass a physical examination. If you’ve developed any health problems, your premium could go up and cost more than an
automatic-renewable policy.
? Convertable term – you?ll have the option to convert to a whole life insurance policy in later years.
5 Quickest ways to lower your Life Insurance Premium
Worried about the spiraling life insurance premium? We have enlisted 5 quickest ways to lower your life insurance premium. Well, keep these points in mind but do tread with caution and act prudently.
Shop around and Bargain
Shop, Compare and Bargain! Well, the oldest principle, old as dirt, but still going strong. Once decided on your coverage, don?t just sign up for the first plan that crosses your eye. Ensure that you shop around (internet is a great place to start) and get a feel of the market. This would help you to bargain hard and get the greatest coverage at the lowest possible price.
Opt for Term Life Insurance ? The quickest way to lower your life insurance premium is to opt for Term Life Insurance policy instead of a whole-life policy. The idea is to keep insurance as what it is and not turn it into an investment product. Thus, you can get yourself insured under term life policy at the fraction of the cost of a whole-life scheme with typically the same coverage amount. However, do not forget that Term Life Insurance covers you only for a pre-defined period of time.
Keep yourself Fit ? Be a low risk proposition for your insurance provider by maintaining a healthy lifestyle and keeping yourself away from addictions such as smoking, drugs and alcohol. A good health record will result in considerable reduction in your life insurance premiums.
Consult an Insurance Advisor – To reduce your life insurance premium, the easiest thing you can do is to consult a good Insurance Advisor. Since the advisor will be pro in the insurance marketplace, he/she would be able to get you to the most affordable deal in line with your coverage requirements. Essentially a good insurance advisor would compare different market rates for you and would also negotiate the best rates on your behalf. Well, internet is a great place to identify an agent.
Start at a young age!
Insure yourself at a young age. Life insurance premium at a young age is only a fraction of what it could be when you are well into your middle-age. The premise is young and healthy people are the lowest risk segment. The low mortality risk is a great incentive for insurance companies to insure you at lower premiums.
A CPA Talks About Buying Life Insurance
Not everyone needs life insurance. The first thing to do is make sure you need it. Life insurance is really meant for your family members or other dependents who rely on your earnings.
Why You Buy Life Insurance
You buy life insurance so that, if you die, your dependents can live the same kind of life they live now. Strictly speaking, then, life insurance is only a means of replacing your earnings in your absence. If you don?t have dependents (say, because you?re single) or you don?t have earnings (say, because you?re retired), you don?t need life insurance. Note that children rarely need life insurance because they almost never have dependents and other people don?t rely on their earnings.
Life Insurance Comes in Two Flavors
If you do need life insurance, you should know that it comes in two basic flavors: term insurance and cash-value insurance (also called ?whole life? insurance). Ninety-nine times out of 100, what you want is term insurance.
Term Life is Simple to Buy and Understand
Term life insurance is simple, straightforward life insurance. You pay an annual premium, and if you die, a lump sum is paid to your beneficiaries. Term life insurance gets its name because you buy the insurance for a specific term, such as 5, 10, or 15 years (and sometimes longer). At the end of the term, you can renew your policy or get a different one. The big benefits of term insurance are that it?s cheap and it?s simple.
Cash Value is Trickier
The other flavor of life insurance is cash-value insurance. Many people are attracted to cash-value insurance because it supposedly lets them keep some of the premiums they pay over the years. After all, the reasoning goes, you pay for life insurance for 20, 30, or 40 years, so you might as well get some of the money back. With cash-value insurance, some of the premium money is kept in an account that is yours to keep or borrow against.
This sounds great. The only problem is that cash-value insurance usually isn?t a very good investment, even if you hold the policy for years and years. And it?s a terrible investment if you keep the policy for only a year or two. What?s more, to really analyze a cash-value insurance policy, you need to perform a very sophisticated financial analysis. And this is, in fact, the major problem with cash-value life insurance.
While perhaps a handful of good cash-value insurance policies are available, many? perhaps most?are terrible investments. And to tell the good from the bad, you need a computer and the financial skills to perform something called discounted cash-flow analysis. If you do think you need cash-value insurance, it probably makes sense to have a financial planner perform this analysis for you. Obviously, this financial planner should be a different person from the insurance agent selling you the policy.
What?s the bottom line? Cash-value insurance is much too complex a financial product for most people to deal with. Note, too, that any investment option that?s tax-deductible?such as a 401(k), a 401(b), a deductible IRA, a SEP/IRA, or a Keogh plan?is always a better investment than the investment portion of a cash-value policy. For these two reasons, I strongly encourage you to simplify your financial affairs and increase your net worth by sticking with tax-deductible investments.
If you do decide to follow my advice and choose a term life insurance policy, be sure that your policy is non-cancelable and renewable. You want a policy that cannot be canceled under any circumstances, including poor health. (You have no way of knowing what your health will be like ten years from now.) And you want to be able to renew the policy even if your health deteriorates. (You don?t want to go through a medical review each time a term is up and you need to renew.)
No Load Term Life Insurance
Have you ever heard the term load and no load in the financial service industry? The loading of an insurance product usually always involves the agent?s commission and the company?s expenses. Some policies have what they call front end loads and back end loads. These loads are normally associated with permanent insurance policies. The cost of doing business is all wrapped up in the loading of a policy. No load term life insurance is probably the least expensive form of life insurance in the market. You often wonder what makes one company so much cheaper than the other and it usually has to do with the type of goods and services provided. Those goods and services are what make up the loading aspect of the life insurance policy. The no load term life insurance policy usually indicates that you are primarily purchasing direct from the insurance company and with little or no professional advice or opinion.
The life insurance professional is still very important to a great number of people. Buying life insurance direct from a company without an agent may be less expensive but it also may leave you wanting when it comes to professional counseling and service. Term life insurance is very simple and so the purchase of term life insurance may be something that you can handle on your own without a professional. These are individual choices and preferences that each of us must decide upon before we buy life insurance.
Term life insurance is inexpensive to begin with and so researching the market place for a no load product may or may not have a major affect on the premium. Ask about loading when you shop for term life insurance. You may be surprised at what you learn about the insurance companies and how they come up with their rates. It will also help you when you inevitably begin to shop for permanent life insurance.
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Term life insurance: Money-saving tips (they do exist)!
Term life insurance is the most affordable way to protect your family?s future. As inexpensive as term life insurance is, there are money-saving tips that will ensure you are paying only what you need. Get the most value for your dollar by checking out the following helpful tips that will save you money while still getting great protection.
1. Get coverage early ? the sooner you buy life insurance the less your annual premiums:
Some people are gamblers by nature and choose to take their chances by skipping out on life insurance. Although it is unlikely you’ll die during your working years, you’re not insuring for what’s likely to happen but instead, for the worst-case scenario. That’s why term life insurance costs less the younger you are. It is also why you should buy it sooner rather than later?because you’ll be providing financial security without spending a lot of money for it.
For example, if we look at the cost to purchase a %250,000 Term 10 life insurance policy you?ll see how delaying purchasing a policy by just a few years could cost you more in annual premiums.
For male non-smokers*:
A 35 year-old may get quotes for as little as %195 per year for a 10-year total cost of %1,950.
A 40 year-old may get quotes for as little as %263 per year for a 10-year total cost of %2,630.
A 45 year-old may get quotes for as little as %373 per year for a 10-year total cost of %3,730.
For female non-smokers*:
A 35 year-old may get quotes for as little as %165 per year for a 10-year total cost of %1,650.
A 40 year-old may get quotes for as little as %210 per year for a 10-year total cost of %2,100.
A 45 year-old may get quotes for as little as %270 per year for a 10-year total cost of %2,700.
* Lowest quote online from February 2006 for a Term 10 policy, one of the most popular life insurance products in Canada. Premiums shown are the rates if paid annually.
2. When your age isn?t really your age:
Your next birthday may be 6 months away but in the eyes of most life insurers you?ve already hit that next magical number. When you get a life insurance quote, the rate you are given is based on the age you are closest to which, 50 per cent of the time is your age at your next birthday. It?s a term called ?Age Nearest?, and that half-year price increase could really add up. See the difference yourself.
For male non-smokers*:
A 39 year-old may get quotes for as little as %248 per year for a 10-year total cost of %2,480
A 40 year-old may get quotes for as little as %263 per year for a 10-year total cost of %2,630.
A savings of %150
A 44 year-old may get quotes for as little as %345 per year for a 10-year total cost of %3,450.
A 45 year-old may get quotes for as little as %373 per year for a 10-year total cost of %3,730.
A savings of %280
For a female non-smoker*:
A 39 year-old may get quotes for as little as %200 per year for a 10-year total cost of %2,000
A 40 year-old may get quotes for as little as %210 per year for a 10-year total cost of %2,100.
A savings of %100
A 44 year-old may get quotes for as little as %255 per year for a 10-year total cost of %2,550.
A 45 year-old may get quotes for as little as %270 per year for a 10-year total cost of %2,700.
A savings of %150
* Lowest quote online in January 2006 for a Term 10 policy. Premiums shown are the rates if paid annually.
3. If you?re a smoker ask about incentive programs aimed at helping you quit:
While not all life insurance companies offer incentive programs to help you quit, some do and could save you money if you are thinking about buying life insurance and quitting smoking. For example, one such company will refund you an amount equal to the difference between the premiums you already paid as a smoker and those you would have paid had you not smoked. What?s more, once you quit smoking, this same company will adjust your premiums to non-smoker rates based on the age you were when you purchased the policy, not the age you are at the time you quit!
4. Check out your payment/billing options:
Many life insurance life insurance companies offer discounts to consumers who pay their annual premiums up front. If you have the money handy, you could save up to 10 per cent of your policy?s premium each year. For example:
? A 35 year-old male with %250,000 in coverage can pay %195 up front per year for life insurance coverage. If paid in monthly installments, however, the annual premium jumps to about %215. Paying up front can save this person %20 per year!
? A 40 year-old male with %250,000 in coverage can pay %263 up front per year for life insurance coverage. If paid in monthly installments, however, the annual premium jumps to about %288. Paying up front can save this person %25 per year!
? A 45 year-old male with %250,000 in coverage can pay %373 up front per year for life insurance coverage. If paid in monthly installments, however, the annual premium jumps to about %407. Paying up front can save this person %34 per year!
Life insurance made even more affordable:
With these money-saving tips in hand, Term Life insurance is more affordable than ever. There is no better time than now to get the coverage you and your family need.
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