What Does Term Life Insurance Entail?

A simple definition will answer the question "what is term life insurance?" This is insurance that you take out on your life for a certain period of time. If you die during that term then the insurance company will pay the amount of the death benefit to your beneficiary.

You do not gain any monetary benefit from having such a life insurance policy while you are still alive, but at least you know your loved ones will be provided for after you are gone. Once the period expires, you can choose to renew the policy or decide not to have any life insurance at all.

With term life insurance, you must pay the premiums on the policy either annually or monthly. As soon as you stop making the payments, the policy becomes null and void. The primary reason for taking out such a policy is to provide benefits for your family so that they can still continue enjoying the same quality of life as they had when your wages were contributing to the family finances. The money from the death benefit is paid in a lump sum, which your dependents can use to pay your funeral expenses, pay off your debts or have money to pay for a college education.

When you take out a term life insurance policy, you have to provide proof of insurability. This generally means that you must have a medical examination to prove that you do not have a terminal illness or that you do not have a medical condition that will bring about an early death. There are insurance companies, though, that will sell you a policy without such an examination.

To get the lowest premiums for the most coverage, the best time to take out term life insurance is when you are young. However, when you renew the policy you will have aged and therefore the premiums will be higher to reflect the additional risk. If you are in good health, have a medical exam and enjoy the benefits of lower premiums, or apply for a no medical exam life insurance policy and pay higher premiums.

What is level term life insurance? This question is quite common because there are two different kinds of term life insurance. In level term, your premiums stay the same throughout the term and the amount of the death benefit also stays the same. Whether you die in the first year of the policy or the final year, your beneficiary will receive the same amount of payout.

Another type of term life insurance is called decreasing term life. In this type of policy, the amount of the death benefit decreases at various increments during the term. The result is that the payout is higher at the beginning of the term than it is at the end. For this reason, very few people choose a decreasing term policy making level term policies the most common.

The cost of term life insurance depends on the level of risk you pose to the life insurance company. If you pose a low level of risk of dying during the term your premiums will be lower than if you are more likely to die. If you work in a dangerous occupation where fatal accidents are common, then no matter how young or healthy you are, you will pay a higher rate than a person working in a less dangerous field.

There are also discounts available in insurance policies that you should ask about, such as having all your insurance policies with the same company. These discounts will make term life insurance more affordable for you.

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Invest in Your Beneficiaries Future With Life Insurance

People the world over are turning to life insurance as an investment option for their families. It is no wonder, because life insurance has its advantages over a period of time. Notwithstanding the fact that some insurance companies have earned themselves the reputation of not paying up at the moment of truth, people are beginning to foray into this industry as a good way of saving and investing. Perhaps because governments are taking more interest and setting up nodal agencies to monitor insurance agencies and ensuring against insurance fraud both by the insured and the insurance company.

People wonder how insurance can be used as an investment for the future of the family. The simplicity of the system works out when one does the math. Let us say that an insured takes out an insurance policy of a hundred thousand US dollars. This policy is due to mature in 20 years, which means that if the insured survives the period of the policy he will get one hundred thousand dollars plus the accrued interest which would be in the region of 15000 US dollars or more depending on the interest and the premium.

In the past, like about 30 years ago, the premium of these insurance policies was very low. This was because the policy was different back then. If the insured survived the period of the policy he or she would not get anything back. However, in modern times things have changed. The insured gets back the entire amount he or she paid as premium through the period along with the accrued interest, which in most cases works out to as little as 50 percent of the insured amount. There is more!

In modern policies the insured receives a sum of money at quarterly intervals of the period of the policy. This means that if the policy is for a period of 20 years the insured will get certain sums of money at five year intervals, given of course that he or she has kept up with the insurance premiums. This works out to the benefit of the insured in two ways.

The sum paid out at quarterly intervals can be invested elsewhere while the insurance policy continues. The longer the insured lives the more he or she gains and do the beneficiaries. Let us say that the insured gets paid three quarterly payouts and then expires. On the death of the insured the beneficiaries get the whole insured sum while the three payouts the insured received will still be invested elsewhere. In any case the total gain will be equal to the three payouts plus the insured sum. Had the insured survived the policy period he or she would have gained less by receiving only the total policy value plus the interest on the sum.

Life insurance companies are today using different techniques for their investments in order to make their payouts more attractive. They are investing in units of shares in the stock market and mutual finds and linking the investments to the policies. This way it works out to the mutual advantage of the insured and the company making the investment choice of millions the world over.

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How Does Life Insurance Work

Many people wonder to themselves, "Just how does life insurance work, anyway?" Life insurance has been shrouded in mystery ever since its inception. Partially this is due to the way life insurance has traditionally been sold, which is through specially trained commission-earning agents. But other factors include the fact that life insurance is perhaps the most intangible product that one can buy, and the fact that it is developed in strange and mysterious ways through the employment of secretive statisticians called actuaries.

Actuaries are professional statisticians with strong business educations or experiences who use data including gender, age, occupational risk, and medical exams to calculate the likelihood of a given person's death. Using these data and actuarial calculations, they advise an insurance company on how much a given policy for a given applicant should cost (I.E. what his premiums should be). From this advice, a life insurance company sets its premiums by coming up with "cost per thousand" tables.

After a person has applied for a life insurance policy and taken a medical exam, the life insurance company, assuming the person is insurable, tells him how much he will have to pay per month (or per year or every six months) to pay for the coverage based on the risk range into which he falls. Factors of youth, being female, non-smoker status, and general health based on the medical exam all contribute to lowering the premium, while their opposites contribute to raising the premiums. Having a hazardous occupation may also raise your premiums depending on the insurance company's underwriting standards.

DIFFERENT TYPES OF POLICIES

There are different basic types of life insurance policies. It is important to know about them so that you can make an informed decision about what type of coverage is best for you.

First comes the very first type of life insurance ever devised: Term. A term policy is very simple: you pay premiums to have death benefit coverage for a specific term, or time period. If you die during that term, your beneficiary receives the payout. If you are still alive when the term is up, you can renew the policy (in some cases) for another term (with premiums based on your new age status) or you can lose coverage. There are different kinds of Term Life for different purposes. You do not receive back any of the premiums you paid during the term. However, Term Life is the cheapest form of life insurance and many financial advisors and planners recommend it.

(Recently the life insurance industry has devised a new kind of Term Life called Return of Premium Life Insurance (ROP) where you can get all your premiums back if you survive the term. However, this kind of Term Life is significantly more expensive. The life insurer uses the extra money to invest and make a profit as a hedge against possible ROP.)

Later on, the life insurance industry developed Whole Life Insurance. The idea here was to give people an incentive to hold a policy for their "whole life" or until a very advanced age (at which time they would receive the death benefit payout to themselves, if still alive) and be able to build up cash value within the life insurance policy which could be drawn upon if needed and eventually even be used to pay the policy premiums. And it is true that, if a Whole Life policy is held long enough, it returns the same as a decent corporate bond. The problems, however, are: Whole Life insurance costs way more than Term Life; many people could get far better returns on their money by investing the money they save with Term; and life insurance was actually never intended to be kept for one's whole life.

As a response, life insurance companies about 20 years ago began developing Universal Life and Variable Universal Life insurance. These polices are really Term Life with a tax-free investment account bundled together with them; this account is partly customized by the policy holder. Variable Universal policies allow for greater investment returns but, hence, exposure to greater risk, including possible losses; they also allow extra money to be paid into them with premium payments to increase their cash value. These policies' premiums are usually in between Term and Whole Life for the same amount of coverage for the same person.

APPLICATION BASICS

As a rule of thumb, when you apply for life insurance you want to be covered for 8 to 10 times your annual salary. (There may also be other considerations of what amount you want if you are in a business situation or if you are using life insurance for a specialized need such as mortgage payoff in case of untimely death). So, if you earn $50,000 a year, you want to have a death benefit of $400,000 to $500,000. This is to allow for your beneficiary to be able to pay off all your debts and still have money left over to invest into an account and use as income.

Beneficiaries need to be chosen with some care, because your choice is investigated by the underwriters when your application is turned in. Technically you can name anyone you want, but a "strange" naming such as a very distant cousin may get your policy denied due to suspicions about your motives. If you are married you should name your spouse and/or your children, though you do not have to; but once again, if you don't that fact may be viewed with suspicion, although if you can justify it to the agent and underwriters you'll get the policy. You can change your named beneficiary(s) at any time while the policy is in force.

Most life insurance policies will not pay out if you commit suicide or are murdered by a named beneficiary within the first two years of having the policy and there will be a written clause stating such in your policy. Also, if a death benefit claim is made and it turns out you as policy holder lied on your application (such as you said you don't smoke but autopsy proves you did), life insurance companies won't pay out.

When you apply for life insurance you must be prepared to answer some sensitive personal questions about financial matters and health matters. The agents are trained as objective-minded professionals and there are strict industry regulations about confidentiality.

Some people prefer applying for life insurance over the Internet. This can be a good idea if you know what you're doing, but the usual person would benefit from meeting in person with agents representing different life insurance companies or meeting with an insurance broker or financial planner to be advised on the best options.

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What's the Difference Between Permanent and Whole Life Insurance

Whole life insurance is a type of permanent insurance, and both of these have terms lasting until the end of the insured's life, as opposed to term life insurance, which, as the name suggests, only covers the life of the insured for a specified term. Put simply, permanent life insurance always pays out to the beneficiary, because the end of its term is the death of the insured; term life insurance only pays out if the insured dies during the allotted time period. The former is substantially-sometimes tenfold-more expensive than the latter, but term life insurance renewal is often costly, since at the end of the term the insured person is older and therefore represents a higher risk. This is especially true of life insurance for seniors, as one might imagine, since their chances of payout are higher.

Whole life insurance, also known as cash surrender life insurance, is considered a solid investment. Given consistent upkeep, it accumulates value on a tax-deferred basis, just as an education or retirement fund does. With whole life insurance, the insured may use the policy as collateral, borrow against it or even borrow from it-again, just as with a bank account. If the insured borrows from it, say to build a dream retirement home, the end cash payout obviously will be lower for the named beneficiary/ies, unless the borrowed amount is repaid. And, if the insured is unable to continue paying into the policy, then just like a bank account, it might still have a payout to beneficiaries, depending on when the payout is. The insurance company providing whole life insurance also folds its dividends directly into the policy (provided the company is profitable), providing a secondary increase in value over time.

Another type of permanent insurance is variable life insurance. Here, the life insurance policy is more of a stock portfolio than a savings account, and its value varies with the value of the investments chosen to support it. At the end of the insured's life, the portfolio is paid out to the beneficiary/ies; depending on the risk level of the chosen investments, the benefit may either erode or grow over time.

With universal life insurance, the insured pays a base initial amount, and then makes payments within a range set by the insurance provider. This type of policy is usually less costly, but it is important to understand that the range of minimum and maximum payments may change over time, depending on the health of the provider, its investments or other terms. Therefore, the account requires more attention than other forms of permanent insurance.

Finally, variable universal life (VUL) insurance is another tax-free account in which terms and payments can vary as needed. In it, flexible premiums may be invested in a variety of areas and accounts, coverage may be increased or decreased, and investments may be transferred between accounts without tax ramifications. Because the policyholder retains more of the risk than the insurance provider, VUL policies often have less costly upkeep fees than many other types of policies. On the other hand, it is also a combination of all of the flexibility possible within the permanent life insurance category.

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Seek A Specialist's Advice When It Comes To Your Life Insurance Premium

When it comes to getting the cheapest and best deal on your life insurance premium then you should seek the advice of a specialist broker. Life insurance should be considered as it can relieve financial worries for your loved ones if the worst should happen and you were to die. Life insurance could be a stop gap during their time of grief and you have peace of mind that at least they wouldn’t be struggling financially.

The first decision you will have to make before thinking about life insurance premiums is how much cover you need for your circumstances and the type of cover that is the best for you. There are different types of life insurance and some are suited to certain situations more than others.

To help you decide roughly how much life insurance you might need you should work out your annual income and then multiply this by 10 at least. This will give you a figure to work from and also take into account factors such as children, your mortgage and of course inflation over the years. When it comes to children then bear in mind that your partner will probably have to get a job if something happens to you and so you will have to take into account childcare costs.

One of the cheapest ways to take out life insurance and one which offers the lowest life insurance premiums is term life insurance. Term life insurance is taken out to payout just against death over a certain period of time if after that time you don’t die then the policy expires and there is no payout. If you want to be guaranteed a lump sum payout then whole of life insurance could be what you need, providing that you keep on paying the premiums each month this policy will pay out, however this insurance is more expensive. If you have a mortgage then you can consider taking a decreasing term insurance policy and this will decrease in line with your mortgage and is usually taken for the length of your mortgage.

Whichever type of life insurance you choose to take it is imperative that you go to a specialist when it comes to getting the cheapest life insurance premiums, insurance premiums do vary from lender to lender and a specialist will know where to look for the best deals for you.

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Life Insurance - What To Look For

As we know, nothing in this world is truly certain, and it's the unexpected events that can take their toll on individuals and their families. Ensuring that those closest to you will be financially stable should something unexpected happen can be a necessary decision for many. Having a safety net in place can give peace of mind to yourself and your family.

It may be hard to think about, and you may not want to, but eventually you'll have to consider taking out some life insurance cover.

Critical illness cover pays out a lump sum should you come down with a life-threatening illness - such as cancer or a debilitating condition such as multiple sclerosis.

There are a few things you should bear in mind when searching for a life insurance policy.

Ensure you purchase enough cover to cover all your debts - such as mortgages - in the event of something happening to you. This can help provide stability and financial peace of mind to those closest to you.
Consider purchasing two separate single life insurance policies rather than a joint policy. By paying a little more to take out two polices you can not only double the cover but also ensure that your partner is covered against the same circumstances, and that your family will be covered should anything happen to either of you.
Check that your policy includes terminal illness cover, this will help ensure that your family will receive a payout in the event of shortened life expectancy.
Write your policy 'in trust' - this will ensure that your policy won't be taxed and affect payouts which will help your loved ones.

It's worth checking with your employer as to what benefits you currently receive. Look at the terminology used, as some may word the concept of life insurance differently.

By doing a bit more research into life insurance policies you can help yourself when you're shopping around for a policy, as any cover you have at the moment could mean you don't need as much additional cover, and could therefore save yourself some money.

You also have the right to increase your cover for no extra charge should circumstances change - such as marriage, childbirth or simply buying a new home - through the use of 'guaranteed insurability options'.

Be careful, however, making sure you check your policy thoroughly, and don't forget to disclose even those small details to your insurer, as forgetting to tell them something as simple as whether you smoke or have been having aches, pains and pins and needles could cost you dear when it comes to making a claim.

It's best to shop around for a life insurance quote, as there are a wide variety of policies out there. By doing a bit of research into different policies you can help find the best plan for yourself and your family.

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