Nowadays, insurance policies are so overrated that people sometimes forget to ask more about their insurance. Some people get insurance for the sake of being covered without actually thinking how long their coverage will last. That is why I have consulted again my life insurance agent about my policy and its coverage period. Here is what I have got:
The validity of a life insurance policy will depend on the type of policy you will get. For example, if you get a term life insurance policy for ten years, the policy will then expire after 10 years. On the other hand, we have the so-called permanent life insurance policy, on which your policy will remain as long as you continue to pay your premium.
So, I have introduced to you these two important terms when it comes to life insurance policies. We have a term life insurance policy and permanent life insurance, which will be elaborated more below. It is very essential to know what type of life insurance policy you will get since different coverage periods vary for everyone. Therefore, let’s kick off with the first type of insurance policy, which is the term life insurance policy.
When Does Term Life Insurance Expire
Before we get in-depth with the details, let us know first what you mean by term life insurance. Term life insurance is a type of life insurance that will guarantee a payment stated on your death benefit for a specified term. The terms can be as short as one year or can be as long as for 30 years. Two possible scenarios may happen during this term, you die while paying the premium for your policy and still on the coverage period or you may outlive your policy.
When You Die While The Policy Is In Force:
We cannot escape unfortunate events to happen such as death; that is why we cling on life insurance for the purpose of replacement of income just in case something bad has happened to you. Therefore, what happens if you die while the term life insurance policy is in force? Well, most probably, your listed beneficiaries such as your spouse, children, and parents will receive the death benefit you have agreed to pay with your insurance company.
When You Outlive Your Policy:
Once the term expires and fortunately, you are still alive, your insurance company will ask you whether you will renew your policy for another five years, let’s say, convert your policy to permanent life insurance policy, or you will just allow your policy to terminate. This means neither you nor your beneficiaries will receive a death benefit. Another way to keep your policy beneficial if you have outlived it is to have a rider of the “return-of-premium” policy.
This is a kind of rider usually offered by life insurance just in case you did not die during the term. With this kind of rider, you are allowed to recover all your premiums paid during the entire term. Of course, adding this kind of rider will increase the overall cost of your policy since this will give you protection if ever you outlive your policy.
Three Types Of Term Life
Term life premiums are set by the insurer based on your age, health status, and average life expectancy. Therefore, it is very vital to know these three types of term life so that you will know what will work best for you.
This comes with the basic coverage period of 10 to 30 years on which the premiums are guaranteed to stay the same until the contract finished, while the amount of coverage provided is increasing.
Yearly Renewable Term (YRT) policies
In simple terms, YRT policies are just like a one-year term life insurance policy that can be renewed yearly without providing proof of insurability every year. This means that you can renew without the need for a medical examination, which ensures your insurability.
Decreasing term insurance
This is a renewable term life insurance in which the coverage declines at a predetermined schedule each year. The policyholders’ premiums are fixed throughout the contract and the reductions in the coverage are often used together with a mortgage that typically occurs monthly or annually.
What Is A Permanent Life Insurance
When we say permanent life insurance, simply, these policies do not expire. Hence, permanent life insurance is a combination of your death benefit with savings. As a result, you need to pay higher premiums at the start to cover the savings portion.
There are two types of permanent life insurance: whole life and universal life.
Whole Life Insurance
This type of insurance offers consistent premiums, long term goals, together with a guaranteed cash value accumulation. To receive the death benefit, you need to pay the fixed premiums for a specified period. What’s so good about the whole life is that its policy will remain the same for your entire life; therefore, it is advisable for long-term responsibilities.
Universal Life Insurance
This type of permanent life insurance is also coined as adjustable life insurance since it is more flexible than whole life insurance in terms of premiums, death benefits, and savings options. For example, you can either increase or lower your death benefits and premiums at any time as long as you are done with your first premium payment. Moreover, with universal life insurance, you can increase the face value of your insurance; however, make sure that you pass the medical examination to become eligible.
As I have said a while ago that permanent life insurance comes with death benefits and savings. For the savings portion, there is a waiting period before you can borrow since it takes time to accumulate enough cash value.
NOTE: Another thing that is worthy to note is that when your total unpaid interest on a loan plus the remaining loan balance exceeds the amount of cash value on your policy, the policy and all the benefits will be terminated.
Term Life Vs. Permanent Life Insurance: Which Is Better?
To answer this question, you must assess your needs on which type of life insurance you will most likely get. Is it used only for temporary or for a short-term period? Or you need lifelong protection and coverage that will last your entire lifetime. To help you decide better, here is a table with criteria, to decide which life insurance is the best for you.
|Criteria||Term-life insurance||Permanent life insurance|
|1. Length of coverage||
|2. Cost of premium||
|3. Cash value||
Term-life insurance is ideal for people with a tight budget since it offers the lowest monthly premium. You may try using this site to get an insurance quote. On the other hand, if you want to experience the best of both worlds, consider getting a combination of both term life and permanent life insurance. Make sure before you get insurance, consider the length and your insurance needs.
How Long Should I Get Life Insurance?
There are things to consider when deciding about the length of your insurance policy. Rather than reading between the lines, listed below are some things you may want to consider so that you can get the appropriate number of years for insurance.
One of the main reasons why you should get insurance is for you to have a replacement for your income in case you die or you retire. If you have calculated that you are 20 years away from retiring; therefore, consider getting 20-year life insurance. In this way, your preparation for retirement will be backed up with insurance and benefits.
Tip: It is important to have a good match of your policy length to the time you expect you are still earning a living. By knowing this, you have a gist of the length of life insurance you will get.
Another thing to consider is the age of your children, they must reach the age of the time they are financially stable so that it will no longer prolong the length of your insurance policy.
Let’s say you buy a house and your income is the primary source to pay the mortgage every month. So, for instance, something bad has happened to you, your spouse might be in a difficult situation to look for monthly payments on his or her own.
Tip: The length of your insurance policy must meet the amount of time remaining on your mortgage. Let’s say you are still left with 20 years to say that the house is completely paid off; therefore, make sure to get a life insurance policy that will last and cover those years.