A life insurance policy is a contract bought to protect those dependent on the policyholder by providing them with cash known as a death benefit in the event of the death of the policyholder. The design of a life insurance policy is such that the benefit is gotten when the policyholder dies. This is a feature that makes life insurance different from other types of insurance policies. If no one is dependent on you financially, then you do not really need a life insurance policy. You can decide however to get it to cover the cost of your funeral. On the other hand, if anyone is dependent on you financially, then buying a life insurance policy is the best way to ensure their financial stability when you die.
As much as people are aware of the importance of life insurance policy, they still do not get one. This is because there is a general misconception that life insurance policies are expensive. This is false. There are different types of life insurance policies available for an intending policyholder to pick from. It is true that some are expensive. There are however some cheap and affordable policies available to be picked from. An example of an affordable life insurance policy is a term life insurance policy.
Term life insurance policies are policies that cover premature death. They are entered into to provide coverage for a period of time agreed on in the insurance contract. The fact that term life insurance policy is for a period of time makes it different from all other types of life insurance policies which last for as long as you live. This means that no limit is set as long as premiums are paid.
Term life insurance policies are designed to cover those who plan for premature death and have the desire to protect their dependents from debts of to give them financial stability.
What Term Life Insurance Policy Covers
Generally, life insurance covers two major types of obligations: immediate and future expenses. Immediate expenses are expenses that need to be paid immediately after the death of the policyholder. Examples of immediate expenses are:
- Cost of funeral
- Outstanding medical bills if any
- Mortgage balance if any
- Personal loan
- Carl loans
- Credit card debts
Future expenses are either planned or unexpected expenses that the policyholder wants to pay for after death. Examples include:
- Spouse’s retirement
- Cost of educating children
- Cost of childcare
Types of Term Life Insurance
There are different types of term life insurance policies available. All the types follow the same model of providing coverage for a specific period of time with certain variations. They are: level term insurance, increasing life insurance, decreasing life insurance, renewable term insurance, convertible term insurance, and return of premium term insurance.
Level Term Policy
This is the most basic form of term insurance. The premiums and death benefits remain the same throughout the duration of the policy. They do not increase. They are usually sold with terms of five to thirty years.
Increasing Term Policy
For this type of term insurance policy, the premium and death benefit increases yearly throughout the duration of the policy. The increase usually at a fixed percentage rate as agreed in the policy.
Decreasing Term Policy
For this type of term policy, the benefit decreases yearly throughout the duration of the policy. The rationale is that your debt obligations reduce with age and time and so does the amount of coverage you need. The premiums however do not decrease as the benefits decreases. So, at the beginning of the policy, a very low premium is set and it remains constant throughout the policy.
Renewable Term Policy
This type of term policy allows you to extend or renew the policy at the end of the period specified in the contract. You can renew for an additional term without a medical examination. Some renewable term policies renew automatically on an annual basis up to an age specified in the contract. Where it is renewable annually, the premium increases annually.
Convertible Term Policy
This type of term policy allows the policyholder to convert to a whole life insurance policy. This can be done at any point during the policy with the same face value. Many insurance companies do not allow conversion for certain age groups. There is a limit placed by them for conversion. With conversion comes an increase in premium.
Return or Premium Policy
This is a rare kind of term insurance policy. Under this kind of term policy, policyholders get paid back the premiums paid if the outlive the policy.
What Happens if You Outlive Your Term Insurance Policy?
Many policyholders want to know what happens when they outlive their term insurance policy. What happens depends on the type of term policy you enrolled in. you can extend the policy, convert it, renew it, or terminate it.
If it is a renewable term policy, it automatically renews with slight changes to the premiums payable. For other types of term policies, you can apply to renew the policy for another. Your premium rate will go up when you renew the policy. However, if you choose a lower death benefit when renewing the policy, then your premium could reduce or remain the same.
If you do not want to renew your policy, if it has a conversion rider in the contract then you can convert it to a whole life insurance policy. The rider ensures that you can convert is regardless of your age or health status as long as it is done within the duration of the term policy.
If the type of the policy you have is a return of premium term policy, then if you outlive your term policy, you will get paid back your premium.
Technically, your policy does not expire if you outlive the policy. The period specified in the contract is only used to calculate the premium. This is one of the reasons your premium will increase if you decide to renew or convert your policy. If you do not explore any of the options stated above because you no longer have a need for the policy, the contract will terminate. If you terminate the policy, you will be forfeiting the premiums paid.
If you’re exploring health insurance or looking for alternative healthcare plans, Life Insurance, or supplemental insurance plans feel free to reach out to our professional agents and see what program or programs might be right for you, that can help you through this time. Call Vivna, Inc. today to learn more here: 866.793.2301