Term life insurance, also called pure life insurance, is an important kind of permanent life insurance which guarantees payment of an agreed-death benefit when the insured person dies during a defined period. Generally, when the term expires, the insured individual can renew it into permanent coverage, convert the coverage to term life insurance or simply end the life-insurance contract. However, there are some factors which affect the premium or the cost of this type of policy. For example, the age and health of the person are taken into account when the premium is computed. Also, the premium may be affected by the kind of coverage provided and the amount of death benefits available.
The level of the interest rates in relation to the death benefit and the length of the term in relation to the premiums, are two of the many factors that affect the level of the premiums. These rates are called risk functions. There are also subcategories within the whole life insurance category which include savings and guaranteed renewable term. The term long term, usually considered to be more expensive than the term short term, has higher premiums because the additional risk is not assumed in the savings option. It is also usually less expensive than the other options.
A pure life insurance contract provides no guarantee payment. Thus, the death benefit paid out depends solely on the ability of the insured to pay tax-deferred amounts over time. This means that if you die while the contract is in effect, your loved ones do not get the death benefit until the contract has expired. In this way, it is like an investment vehicle where you leave the risk with the provider, so to speak. With guaranteed renewable term contracts, the insured pays a stated death benefit during the term; then at the end of the contract, if you still have money left, the provider can decide whether or not to renew the contract and extend the term. These contracts typically have lower premiums.
If you are in a low-income family and/or do not have a retirement account with a significant balance, a term policy would not be your best option. Because of the lack of an allowance for death benefits, your family will have to absorb the loss of your income when you die, thereby putting them in a very dire financial situation. In addition, even if you are working now, with an income that is above the income required to maintain a term policy would be difficult for your loved ones. These types of policies would be a waste of money in these circumstances.
To determine whether term life insurance policies would be a good choice in terms of providing death protection, consider how much your family would need to survive without you. Then compare the costs of term life insurance policies in comparison to investing in CDs or saving for retirement. It's important to remember that you are protecting only a portion of their income. The rest of your family's financial future will be up to your family's ability to spend money. However, if your income continues to erode, your family's ability to do so will also diminish. Therefore, it makes sense to protect against the loss of income instead of trying to replace that income.
Term life policies have a higher premium than permanent policies due to their flexibility regarding the deductible amounts and the possibility that the insured could miss one premium payment and be subjected to a different deductible amount next year. However, because the premium is less expensive, this type of coverage has a lower monthly cost. In addition, the payments remain affordable even as the investments return modestly. Term policies also offer a level of flexibility that other forms of coverage don't offer.
The level of the interest rates in relation to the death benefit and the length of the term in relation to the premiums, are two of the many factors that affect the level of the premiums. These rates are called risk functions. There are also subcategories within the whole life insurance category which include savings and guaranteed renewable term. The term long term, usually considered to be more expensive than the term short term, has higher premiums because the additional risk is not assumed in the savings option. It is also usually less expensive than the other options.
A pure life insurance contract provides no guarantee payment. Thus, the death benefit paid out depends solely on the ability of the insured to pay tax-deferred amounts over time. This means that if you die while the contract is in effect, your loved ones do not get the death benefit until the contract has expired. In this way, it is like an investment vehicle where you leave the risk with the provider, so to speak. With guaranteed renewable term contracts, the insured pays a stated death benefit during the term; then at the end of the contract, if you still have money left, the provider can decide whether or not to renew the contract and extend the term. These contracts typically have lower premiums.
If you are in a low-income family and/or do not have a retirement account with a significant balance, a term policy would not be your best option. Because of the lack of an allowance for death benefits, your family will have to absorb the loss of your income when you die, thereby putting them in a very dire financial situation. In addition, even if you are working now, with an income that is above the income required to maintain a term policy would be difficult for your loved ones. These types of policies would be a waste of money in these circumstances.
To determine whether term life insurance policies would be a good choice in terms of providing death protection, consider how much your family would need to survive without you. Then compare the costs of term life insurance policies in comparison to investing in CDs or saving for retirement. It's important to remember that you are protecting only a portion of their income. The rest of your family's financial future will be up to your family's ability to spend money. However, if your income continues to erode, your family's ability to do so will also diminish. Therefore, it makes sense to protect against the loss of income instead of trying to replace that income.
Term life policies have a higher premium than permanent policies due to their flexibility regarding the deductible amounts and the possibility that the insured could miss one premium payment and be subjected to a different deductible amount next year. However, because the premium is less expensive, this type of coverage has a lower monthly cost. In addition, the payments remain affordable even as the investments return modestly. Term policies also offer a level of flexibility that other forms of coverage don't offer.
