Part 1of a four part series : Term Life
What is A Term Life Policy?
A Term Life policy is a policy that is designed to cover the insured for a fixed amount of time, it can also be called Term Assurance. This insurance is only for a fixed period that is designated by the owner at the beginning of the policy, once the term is over the policy lapses. The insurance may still be available to purchase, but the price will increase dramatically, the price will remain fixed however throughout the life of the policy in most cases, this is called level term. If you should find yourself in a position or soon to be in this position where your insurance is about to come to the end of the term, it might be wise to consult an insurance specialist about obtaining new insurance for the purposes that you might need. The other option is to simply let the policy lapse if the need is no longer there.
How does Term Life compare to other Life Insurance types?
It is the least expensive by far as it doesn’t contain a cash value feature for the purchaser. It generally is used to protect the family for a certain period of time, so that the survivors get through the period in which the income lost by the insured will need to be replaced by another source. If the insured dies then the Face Value of the policy will be paid to the designated beneficiaries. This is in contract to the other types, such as Whole Life, Universal Life or Return of Premium, the first two covering the insured their whole lives and Return of premium returning the premium after a certain period of being insured. This insurance is generally not used for estate planning as it’s only tax benefits are if the insured dies, the funds are given to the beneficiary tax free. Being a tax professional however the IRS might try and include the funds as part of your income, but it’s something that can be disputed and won.
Is Term Life the best Policy for me?
Term Life insurance is the lease expensive. It has value for different people for different reasons. For the young person who is just starting out with a family, it might cover them for the time that the breadwinner is employed and help replace his income, the majority of policies are sold for income replacement. The prices are very affordable for young people because of the low risk to the insurance company of the person dying before the policy lapses. This may also be good for an older person who can’t afford the other types of policies due to the large increases in premiums. This may be the only type of insurance that a person can afford, as premiums can become expensive. It is important to remember that the policy will lapse if the insured doesn’t die and the premiums will increase dramatically, so as with any type of financial investment, plan carefully and consider all options, as this is an important decision.
If you would have any questions, please feel free to contact me here at my website or call me.
Bill Ware
8/16/16
