#4 of 12 in the Life Insurance “Checklist For The Real World” series.
Selecting the life insurance type…It’s easier than you think. For 95%+ of the people buying life insurance, term life insurance is the way to go.
Here’s the “short”? explanation:
Term life insurance is set up for a specified time period (a term). There is no investment or savings aspect with term life insurance as with permanent life insurance such as whole life, universal life, or variable life. It is designed to provide PURE financial protection in the case of a financial loss caused by death.
Permanent insurance is called “permanent” because it designed to provide coverage to at least the age of 100-as long as the premium payments are made. Because most humans don’t live to be 100 years old, these policies nearly always pay out, so they are more expensive to compensate for that fact.
Term life insurance on the other hand, since it is only in effect for the length of the term (at most 30 years) doesn’t always pay out. For example, if you bought a 30 yr. term policy at age 30 and lived to be 61 years old. The life insurance company would have collected all your premiums and never paid out to you or your loved ones.
However, it’s still the best choice for most because it’s about 100% less expensive than permanent life insurance.
The down side of term life insurance is that the longest term you can buy is 30 years. If you think you may need a longer term than the 30 year option, you could be in for a big problem: You’re older, and it’s a whole lot more expensive as you age.
Most policies usually promise “guaranteed issue” at the expiration, but they sure as heck don’t guarantee the price. Guarantee issue: meaning that your health won’t be an issue as it usually is when you buy a new policy. After age 65, term life insurance can be around $5,000 – $15,000 per YEAR! (IF you already have a policy in force and are invoking the guaranteed issue clause.) If you don’t have a policy in force, you probably can’t even get coverage at that age.
However, there is a newer product type out called “Term to Age 100®” or “Term to 100®” that’s basically a permanent policy constructed to act like a term life insurance policy. I won’t bore you with the mathematics of how they do it, but let’s just say the product type name is very accurate. It isn’t as expensive as permanent insurance and it isn’t as cheap as term insurance, but it gives you the best of both worlds. (Ask your agent to run a quote for you on this type of insurance for you to compare with your term life insurance prices).
If you think you are in a situation that requires whole life, universal life, variable life or some other form of cash value life insurance (usually looking for a tax sheltered savings instrument), your agent or broker will be happy to discuss your specific situation in depth.
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