Life Insurance: Term vs Whole Life. Basic Tips and Strategies
One of the most popular types of life policy is ‘Term Life Insurance’. It protects your beneficiaries against financial loss in the event of your death. It is also the least expensive form of life insurance on the market. But it only provides protection for a definite period of time. Term policies do not accumulate a cash values and the maximum term period is usually 30 years.
Term policies can be used when there is a limited period of time needed for protection and when the costs require it be as inexpensive as possible. The premiums for these types of policies are significantly lower than whole life policies. They also offer a large amount of insurance protection in comparison with other forms of life policies.
Other variations of term insurance
Annual Renewable and Convertible Term
This policy is usually for one year of protection but allows the policy holder to renew successive periods thereafter at higher premiums without having to provide evidence of insurability.
This is the most common form of term life insurance. This policy has a guaranteed premium level for the life of the policy. Thus the premium will not increase during the fixed term which can be up to 30 years.
This policy has a level premium throughout the term of the policy. But the amount of the death benefit decreases over time. This is useful with mortgage debt protection as the protection decreases with the mortgage balance.
Many term life insurance policies have an important renewability feature that guarantees that the insured can renew the policy for an extended number of years based on age. This convertibility provisions permit the policy owner to change a term policy for a more permanent coverage within a specific time frame without having to provide further medical evidence of insurability.
Consumers of insurance products really only need to replace their income until they’ve reached retirement age. Dependents are usually then of an age to take care of themselves and they would have accumulated a fair amount of wealth for retirement. Thus term life insurance serves a valuable insurance protection at a very affordable premium price.
Taxation and Life Insurance
The death benefits paid out to beneficiaries are not taxable. Thus life insurance is now being used as an estate planning tool to pass wealth on to children. Term life insurance is also a very cost effective way to provide benefits to survivors.
To purchase life insurance protection, you will need to fill out a general application and a medical questionnaire. Your application for coverage constitute a binding contract between you and the insurer. It is important that the information provided be true and that no misrepresentations have been made. Once a policy has been approved and in existence for at least two years, the validity of that contract cannot be questioned under the incontestable clause, unless fraud can be proven.
There is a standard suicide clause in life contracts that if the insured commits suicide within one or two years of the policy’s commencement, no death benefits will be paid out.
It is important to designate your beneficiaries clearly and carefully with the proper wording.
There are two categories of beneficiaries. The primary beneficiary and contingent beneficiaries. Primary being the beneficiary first entitled to the death benefits. The contingent beneficiaries are persons designated if the primary beneficiary should die.
When naming children to share in the death benefit, you should clearly make known that the surviving children share equally all proceeds.
Other Insurance Products
There are many other forms of insurance protection not limited to life and property. You may buy insurances for specific diseases, professional liability, legal, loans and mortgages, etc., etc.
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