Term Life Insurance is low cost, best and affordable plan for young people. If you are thinking about buying a life insurance policy, then you may have heard of Term Insurance. Insurance is a slightly complicated financial matter and there are some basic types of life insurance. The two major types of Life Insurance are – Term Life Insurance and Whole Life Insurance. Although, when you go to purchase a life insurance for yourself or a family life insurance plan, you may find it difficult to categorize the policies being offered. So, what is Term Life Insurance in actual financial sense ?
Term Life Insurance Definition : This is an insurance policy which is valid for a fixed term. It can be like 20 years, 30 years term. After the term expires and the policy conditions have not been met, it is up to the insured person to continue for another term or just end the insurance and get his/her money. Term life insurance is a relatively simple plan with a basic idea. And it is also the most affordable type of insurance. On the contrary, whole life insurance keeps the person insured for life generally for a 100 years. However, this ease comes at a much higher payment of premiums.
How does Term Life Insurance work ? In term life insurance plan, the insurer starts by paying a very small premium. The premiums gradually increase over the years, as the person grows older. Then, if the insured person dies during the Term of the insurance, the beneficiary people will be given the amount promised , called the Face Amount of the insurance.
But, how is Term Life insurance the most affordable of all life insurance plans ?
This can be easily understood with an example. Suppose you are 30 years old and you would like to insure yourself with a life insurance plan. In term life insurance plan, an insurance company can have a plan which has a Face Amount of $ 300,000 for a term of 30 years. The starting premium is very low , somewhat around $ 400 per year. But, the premium increases each year and by the time you turn 60 ( after 30 years ) , the premium can be as high as $ 15,000 per year. So, for 30 years, you keep paying increasing premiums to the insurance company. In return, you get the insurance against life. That is in case of untimely death during this period of 30 years, your family will get $ 300,000 which is a huge amount. There are differences as to how insurers pay this amount. Some pay it at one time, others pay it over a period of time like a pension to your beneficiary person.
What are the advantages of a term life insurance plan and which people should prefer this Term Life Insurance. Although term life insurance can be opted by anyone, it benefits young people a lot. Advantages of term life insurance over other types of life insurance plans are :
- Cost Effective and Affordable : Term life insurance is the most affordable of the lot. You get a Face Amount of huge lump sum money by paying just a level or increment premium. You end up paying less and have the opportunity of getting the maximum return. The benefit to you per dollar of money that you paid is excellent.
- It is Simple : Another great advantage of term life insurance is that it is unlike all other complex life insurance plan. You just pay premiums and get covered value if the policy conditions are satisfied. There are no extras, like investment in whole life insurance.
- Best Rates : Term Life insurance has the best rates for many Terms – 10 years, 20 years and 30 years. There is a lot of competition even in term life insurance, so you can get the best value for your money. Better rates mean that you can extract a higher return on your investment in premiums.
- Best for Young People : The insurance premium depend on health, age and medical records. If you are a normally healthy young individual of say 30 years, the initial term life insurance premiums will be low and affordable. As your salary increases, you can pay more premiums. This the technique behind term life insurance and why there is a Level increasing premium.
Different Types of Term Life Insurance plans : Best companies offer some standard types of Term Life insurance plans, like Annual Premiums ( in which the premium steps up by a bit each year ), 7 year and 10 year Level Premium plans ( premium remains fixed for 7 years or so ) and Decreasing plans ( where the Face Value decreases subsequently). Many people prefer the Decreasing Model, if they have disposable money at hand. Term Life insurance policies can be single or group as well.
About the Medical Exam : Insurance companies are made to mitigate your risk. They do a medical exam of the person to know about his/her health status. Some companies however provide term life insurance with no medical exam for young, healthy individuals who have a disease free family medical history. For seniors insurance companies perform a check of the personal and family health record, do their own statistical calculations and come up with Insurance quotes.
If you want to get a cheap or affordable term life insurance plan, you can request insurance quotes from companies you prefer and use insurance calculators to estimate your own financial benefits.
Hope you got what you were looking for.