Term Life Insurance
I speak to many people about life insurance almost daily and I can see a complete confusion over what the various types of life insurance are. Some folks have read up on what the consumer advocates have to say and demand term life insurance. Others just have to have something where they “get their money back”; regardless of whether that’s the best deal or even the right type of insurance. Ultimately I believe this confusion stems from the insurance industry selling products using wild and colorful presentations that focus on just about everything but the insurance aspect. Consumers are confused and skeptical of being sold the wrong type of life insurance.
There is a fix to that. Quit treating life insurance as a financial product and start treating it as an insurance product.
Life insurance is insurance – not a savings or investment account.
It’s generally not a tax saving strategy either (occasionally it is – but it’s only a solution to tax problems if you actually already have tax problems. Are you seeking a solution to your tax problems?). Look at life insurance the same way you would your car insurance. Would you consider saving for your children’s education via your car insurance? Do you want all your premiums “back” from car insurance as a savings plan? Of course not. And that’s because we all know our car insurance is an insurance product not a financial product.
In fact, at its core life insurance works very similar to car insurance. We pay a premium for a year. If we have a claim (we die) the insurance company pays the benefit. If we don’t have a claim the insurance company uses our premiums to pay the claims of whoever did have a claim. That’s simple enough.
Just like car insurance, if we’re a bad driver our rates go up. What primarily makes us a bad driver with life insurance is our age. Every year we’re a year older, we’re a year closer to dieing. So the way pure life insurance would work is we’d pay a premium for a year and have our coverage. Next year our rates would go up a bit, as they would every year thereafter. Eventually the insurance premiums would be out of site since we’d be such a bad driver (we’d be old).
The product just described does exist. It’s called 1 year term life insurance. It’s 1 year term because the rates go up every year. It’s term life insurance because there are no bells or whistles or cash values in the policy and the rates basically follow our age. The problem with this product is that no one will buy it. Who’s going to buy a life insurance product where they know the rates are going up every year and eventually will be too expensive? Nobody.
So what the insurance companies did is take the rates over 10 years and figure out the average premium. Using that average premium, they can now provide a product where the rates are level for 10 years, then they go up and again are level for another five years, and so on – basically stair casing upwards every five-ten years. That product is called 10 year term life insurance. 20 year term, 25 year term, 30 year term or even 35 year term life insurance, they all work in the same fashion.
If you’re younger and raising a family and need a lot of insurance, term insurance fits the bill. A 20 year term life policy will give you level rates for 20 years; generally long enough to get the kids mostly out of the house and pay down the mortgage (if you have a 30 year mortgage you should go for a 30 year term insurance). And since the premiums are based on your age and you’re not paying for cash values or other features, it’s pretty much the cheapest type of life insurance available.
Over this period of time (20-30 years) if you’ve saved and invested wisely, you should have a significant amount of accumulated cash. Once you have these resources, you’ve eliminated your need for life insurance.
Learn more about Life Insurance.
Consider these Four Facts about Life Insurance.
Buy the Right Kind of Life Insurance for Your Family need.
Find out more about How Term Insurance Fits.
Questions about Cash Value and the answers your should know.
Is Life Insurance a Good Investment? find out why or why not!
Important Tips for Making a Wise Insurance Purchase.
Money Saving Tips When Buying Life Insurance
Have You Made These Life Insurance Mistakes?
What to Consider When Replacing a Policy?
Related posts:
- How Term Insurance Fits?
- Is Life Insurance a Good Investment?
- Have You Made These Life Insurance Mistakes?
- Money Saving Tips When Buying Life Insurance
- Four Facts about Life Insurance
- Life Insurance
- Some Questions about Cash Value
nice posting and thanks for very useful information.
I admit, I have not been on this site in a long time… all the same it was another joy to see It is such necessary subject and to avoided by so many, even authority. I thank you to advice making people more aware of possible issues.
Eddie,
Thanks for you comment and hope to see you back again. this time sooner