Which Term Life Policy is Right for You
All term coverage works under the same principal: it has a start date, and an end date, and when the end is reached, there is no more coverage remaining. If you die while your policy is in effect, your beneficiary will receive a payout for the amount of coverage you purchased. If you do not collect on your policy before the term is up, your insurance expires and you will receive nothing.
However, all policies are not the same. There are several options you can choose when purchasing one, and you should research those carefully and discuss your choices with an agent or financial advisor before finalizing your decision.
The Insured Sum
One of your choices revolves around the insured sum and how it is paid during the time in which your coverage is in effect.
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Level Term Benefits: This means that you purchase a set amount, and that amount is what will be paid to your beneficiary regardless of what point in the term you pass on. Most policies are structured in this way, as people typically calculate how much would be needed to maintain their family's standard of living in the event of a tragedy.
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Decreasing Term Benefits: As its name implies, benefits would decrease with time. Usually, older adults select this option because they have fewer dependents and also fewer financial obligations to meet as they age. If a term spans twenty years, their requirements for the first ten years may be significantly higher than their requirements for the second ten.
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Increasing Term Benefits: If you expect to need increased coverage with age, either to compensate for inflation or to provide for a growing family, you can select an increasing term benefit option so that as long as your policy stays in force, your coverage will go up.
Renewing and Converting
Two other things to consider when buying a policy are whether or not you can renew it when it expires, and whether or not you can convert into a whole or universal life policy, without having to take another medical exam or “re-qualify.”
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Renewable: Unless you are purchasing life insurance for a very short term only (for instance, as part of a requirement to qualify for a loan of some sort), it is a good idea to make sure that you can renew your policy when the term is up. That way, you do not have to worry about another evaluation and you can typically secure lower rates, especially if any health problems do pop up in that time.
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Convertible: When you buy term life, it is often because it is a cheaper option than whole, but it does not afford you with nearly as many benefits and opportunities. Many people start off with term and then realize that if they paid just a bit more, they would be able to acquire whole life coverage. When that money becomes available, converting is a good option, so make sure it will be available to you if and when you want it!
As with any major purchase, it is important to make sure that you are aware of your choices – and their implications – before you buy anything. Do your research and consult with trusted advisors, then shop around to make sure you get the best rates possible.
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