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Term Insurance: Bad Economy, the Right Time for Term?
In spite of losses of jobs and retirement assets, most responsible people realize that the last thing one should drop is life insurance. Since the cost is often the determining factor during hard times, it’s important to understand the difference between level term and whole life insurance in order to be able to choose the best plan for your family.
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What is level term life insurance? It is simply a type of life insurance that covers your for a period of time, usually 10 to 20 years. Because it does not build cash value, it is typically less expensive than whole life which covers you for your “whole life” just at the name implies. Term life insurance also allow you to purchase high face values of coverage, thereby providing for your family if something happens to you. It usually requires medical underwriting, especially in high face values, so be prepared to undergo a paramedic exam or possibly even a physical.
Level Term: Level term life insurance is probably sold more often than any other type of life insurance, primarily because of the cost. Although you should always purchase from a company that will give you conversion options to whole life or universal, level term will protect a young family. It is called “level” because both the premium and the benefit remain unchanged or “level” for the initial time period. It can be used to protect both a spouse and children by means of riders, and can even come with a disability waiver that will allow the company to pay the cost of insurance if you should be come disabled. In most cases the disability waiver will result in insurance that can be renewed for life if you suffer a disabling condition.
Finally, Term Life can be used to protect a business by insuring the key employee or owner. In this way, a business loan can be paid if the owner dies, or expenses of replacing key individuals can be alleviated. Group term is also level, and is a way for a business owner to provide very low cost life insurance as a benefit to all employees.
Annual Renewable Term also known as Yearly Renewable Term: Annually renewable term is the most common conversion offer of level term, simply because many companies that specialize in term insurance do not offer other options. It refers to the fact that after the initial period, the insurance can be renewed, but at a higher premium each year. Ultimately, if the policy is renewed to the maximum allowable age, an annual renewable term will be the most expensive life insurance an individual could purchase.