Today, there are many types of life insurance policies to meet a variety of insurance needs and many investment objectives. As only one element in the estate plan, the insurance program must be tailored to the needs of each individual estate. Basically, however, you will have a choice among several principal types.
Term Insurance
The chief thing to keep in mind about term insurance is that it is temporary insurance, which exists for a given period of time-such as five, ten, twenty, in some cases thirty years. You pay a fixed amount in premiums for the period of its term. If you don't die in that period, the policy expires and protection ends. Most term policies, however, give the holder an option to renew. On each renewal, the premium rises, and usually the renewal option ceases at age 65 or 70. Term can usually be converted, however, at any time to permanent insurance with no physical examination required, generally up to age 65.
Term insurance requires the smallest outlay of cash. A man, age 35, could carry $100,000 of five-year term at a net premium of only $300 per year. He'd have to pay a net of $1,148 for the same amount of whole life insurance.
But in the long run, term is not inexpensive. It's costly. The premium keeps rising with every renewal. Over a period of years, your total net costs for term will exceed the total net cost (your net premium less cash value) of permanent insurance.
Remember, too, that since most term policies cut off at age 70 or 80, they cannot give either continuous or permanent coverage to a person with a normal life expectancy. Should you buy term or not?
If you are a young person, married, and about to buy basic insurance, term insurance is not the long-term answer. You need permanent coverage until you die, at the lowest net cost. Why? Well, take the case of Mrs. Widow, age 78, at the other end of life. Her husband had carried twenty-year level-premium term life insurance for $500,000. He died fifteen years after it had passed its twenty-year mark. It was too expensive to renew, and after all, they had bought it to cover the family's needs until the children were through school. Unfortunately, retirement savings were inadequate, and Mrs. Widow has had to sell their home, hoping she can manage to live off the net sale proceeds until she dies.
But what do you do if you can't afford the premiums for permanent insurance? The best solution is to buy part term and part permanent, converting your term to permanent as your income rises. In other words, it's better to supplement permanent insurance with term than to carry no permanent insurance at all. There are also policies that blend term insurance with whole life. Over time, dividends replace the term insurance with whole life.
There are many situations, however, when term insurance is a useful solution. It's usually the best answer when there is a need for immediate protection for a limited period of time or for a particular purpose. This is the case with term mortgage insurance, which Mr. C bought to make sure his wife would never have to sacrifice their dream house.
So, too, with many business and investment situations. Take the case of an inventor seeking financial backing. He has a new product with great potential, but it will take several years to get it ready for the market. Investors, while interested, are cautious about advancing money. What will happen if the inventor dies before the product is ready? The solution: They take out term insurance on the inventor's life and thus protect themselves against the loss of their investment, at the lowest cash outlay, in the event of his premature death.
Credit By Nate Perrott
Term Insurance
The chief thing to keep in mind about term insurance is that it is temporary insurance, which exists for a given period of time-such as five, ten, twenty, in some cases thirty years. You pay a fixed amount in premiums for the period of its term. If you don't die in that period, the policy expires and protection ends. Most term policies, however, give the holder an option to renew. On each renewal, the premium rises, and usually the renewal option ceases at age 65 or 70. Term can usually be converted, however, at any time to permanent insurance with no physical examination required, generally up to age 65.
Term insurance requires the smallest outlay of cash. A man, age 35, could carry $100,000 of five-year term at a net premium of only $300 per year. He'd have to pay a net of $1,148 for the same amount of whole life insurance.
But in the long run, term is not inexpensive. It's costly. The premium keeps rising with every renewal. Over a period of years, your total net costs for term will exceed the total net cost (your net premium less cash value) of permanent insurance.
Remember, too, that since most term policies cut off at age 70 or 80, they cannot give either continuous or permanent coverage to a person with a normal life expectancy. Should you buy term or not?
If you are a young person, married, and about to buy basic insurance, term insurance is not the long-term answer. You need permanent coverage until you die, at the lowest net cost. Why? Well, take the case of Mrs. Widow, age 78, at the other end of life. Her husband had carried twenty-year level-premium term life insurance for $500,000. He died fifteen years after it had passed its twenty-year mark. It was too expensive to renew, and after all, they had bought it to cover the family's needs until the children were through school. Unfortunately, retirement savings were inadequate, and Mrs. Widow has had to sell their home, hoping she can manage to live off the net sale proceeds until she dies.
But what do you do if you can't afford the premiums for permanent insurance? The best solution is to buy part term and part permanent, converting your term to permanent as your income rises. In other words, it's better to supplement permanent insurance with term than to carry no permanent insurance at all. There are also policies that blend term insurance with whole life. Over time, dividends replace the term insurance with whole life.
There are many situations, however, when term insurance is a useful solution. It's usually the best answer when there is a need for immediate protection for a limited period of time or for a particular purpose. This is the case with term mortgage insurance, which Mr. C bought to make sure his wife would never have to sacrifice their dream house.
So, too, with many business and investment situations. Take the case of an inventor seeking financial backing. He has a new product with great potential, but it will take several years to get it ready for the market. Investors, while interested, are cautious about advancing money. What will happen if the inventor dies before the product is ready? The solution: They take out term insurance on the inventor's life and thus protect themselves against the loss of their investment, at the lowest cash outlay, in the event of his premature death.
Credit By Nate Perrott
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