Permanent Life Insurance Options
Term policies arent the right choice for everyone, because they have two main drawbacks:
Whole life and universal life policies are the two main types of permanent life insurance, so named because they provide protection that lasts your entire life. Unlike term, permanent policies are not a pure insurance product because they include a cash value component: A portion of the premium dollars can grow over time on a tax-deferred basis4.
Cash value can provide a number of benefits that you can use while youre still alive. It takes a few years to grow into a useful amount, but once that happens, you can borrow money against your policys cash value, use it to pay your premiums, or even surrender it for cash in retirement5.
Waiver Of Premium Rider
A waiver of premium rider offers the option for you to waive premiums until such time as youre able to work again if you become permanently disabled, or are unable to work due to a covered illness or injury such as:
While the qualifications of disability to trigger this rider will vary according to the insurer, it can be particularly important to make sure your policy doesnt lapse and your family continues to have financial coverage. This is because, for example, if you lost a leg and were unable to work for several months, but accumulated hefty hospital costs in addition to your normal living expenses, your outstanding financial obligations would still be there.
Additional Options For A Term Life Insurance Policy
Term life insurance policies may be classified as either level or decreasing term, according to the III. Level term policies, in which the death benefit does not decrease, are the more common form of term life insurance, the III says. Decreasing term life insurance policies typically see the death benefit decrease at specific intervals during the course of the term.
Some term policies allow for an increase in your premiums during your existing term. To avoid any surprises down the road, read your policy carefully and ask your insurance provider questions up front.
Finally, some term policies offer a return of premium option that entitles you to have some or all of your premiums refunded at the end of the term, assuming you have made no claims on the policy, says the III. It’s worth noting, however, that such policy premiums tend to be significantly more expensive than non-refundable premium options.
Buying life insurance is a step toward helping to ensure your family’s financial future. Consult with your insurance provider to determine whether term life insurance meets your needs.
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What Are The Drawbacks Of Level Term Life Insurance
While your level term life insurance comes with the possibility of a fixed cash sum payout, its worth bearing in mind that the amount wont increase with inflation, so the value of the payout wont keep pace with rising living costs.
Your life insurance policy could also form part of your estate, so could be subject to Inheritance Tax read more about life insurance and tax.
Summary Of How A Level Term Assurance Policy Works
|Value of the sum assured||
|Terminal illness benefit||
|Critical illness benefit||
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Level Term Insurance Rates
Although most companies offer very similar types of level term life insurance, the rates vary considerably from company to company. With todays technology, anyone looking to shop multiple insurance companies to find the best level term life insurance rates can easily use any comparative rater that can be found on thousands of life insurance websites.
Before you use a comparative rater, make sure youre on an independent brokers website and not an insurance companys website. Dont worry, the rates on the companys site are not lower than the rates on an independent brokers site.
Here is an example of the rates for a 20-year $500,000 Level Term Life Insurance policy for a very healthy male and female non-smoker:
Age of Applicant
What is very apparent when you view this rate chart is that level term life insurance is very affordable but the longer you wait, the more it costs. For an accurate rate for your actual age, please use our comparative rater at the bottom of the page.
How Does Level Term Assurance Work
A level term life insurance policy, which is also commonly referred to as level term assurance, has two key defining features:
- The duration of the policy is finite so it protects the person who is insured for a set number of years
- The lump sum paid out in the event of a claim remains a fixed amount until the policy ends
The lump sum that will be paid is usually referred to as the sum assured and the number of years it will protect you for is referred to as the term. However, you are not tied into continuing your life cover for the full term – you can cancel at any time. Bear in mind that you will no longer be insured by your policy if you stop paying the premiums.
Level term assurance policies are designed to pay out a lump sum of money upon claim if the claimable event happens within the term. Importantly, the policy accrues no value and once the term of the policy expires, there is no cash return. For this reason, it is one of the cheaper types of life insurance policies to buy and can be a great way to create some peace of mind through periods of life when death or illness would have a detrimental financial impact on you and your dependents.
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What To Look For In A Level Term Insurance Policy
Look for a level term life insurance policy with premiums that fit within your budget. If you cant make the premium payments, the policy might terminate, leaving you without coverage. It is important to consider what you could comfortably afford. In addition, choose a term that covers the years you have the most significant financial commitments.
For example, young parents may choose a 20-year term so that by the time the life insurance policy term ends, their children would have likely moved out and become financially independent. Finally, consider the overall reputation of the insurer when it comes to customer service, clarity, and reliability.
What Is Difference Between Whole Life And Term Life Insurance
Two of the most common types of life insurance are term life vs. whole life. Both term life and whole life provide a death benefit for the beneficiaries you choose, but whole life is a type of permanent policy with a savings component, while term life is only in force for the period of time that you choose.
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Why Should I Purchase Permanent Insurance
A permanent life policy provides lifelong insurance protection. The policy pays a death benefit if you die tomorrow or if you live to be 100. There is also a savings element that will grow on a tax-deferred basis and may become substantial over time. Because of the savings element, premiums are generally higher for permanent than for term insurance. However, the premium in a permanent policy remains the same, while term can go up substantially every time you renew it.
There are a number of different types of permanent insurance policies, such as whole life, universal life, variable life, and variable/universal life. In a permanent policy, the cash value is different from its face value amount. The face amount is the money that will be paid at death. Cash value is the amount of money available to you. There are a number of ways that you can use this cash savings. For instance, you can take a loan against it or you can surrender the policy before you die to collect the accumulated savings.
There are unique features to a permanent policy such as:
You can lock in premiums when you purchase the policy. By purchasing a permanent policy, the premium will not increase as you age or if your health status changes.
The policy will accumulate cash savings.
Depending on the policy, you may be able to withdraw some of the money.
You also may have these options:
What Happens When The Level Term Ends
When your level term life policy expires, your coverage will end along with your payments to the insurance company.
You will not receive anything else from the insurer and youre no longer obligated to pay premiums.
If you want your coverage to continue, you have a few options.
For example, some policies offer a conversion feature, which allows you to convert to a permanent form of life insurance.
Or you may be able to keep your current policy in force by continuing to pay your premiums. You usually dont need to undergo a new medical exam. This can be a good option if you cannot qualify for a new policy because of changes in your health.
However, if you do this, the cost to keep the policy in force will increase significantly.
You can also try to purchase a level term policy from a new insurance company. Keep in mind that a medical exam will likely be required and buying coverage when youre older will always cost more.
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What Is The Difference Between Level Term And Decreasing Life Insurance
Simply put, with a level term life insurance policy, if you were to die within the term, your family will be paid the pre-agreed cash sum. For decreasing term, the cash sum reduces throughout the policy length, approximately in line with the decreases in a repayment mortgage.
What is level term life cover?
What is level term life insurance? Level term life insurance is where the insurer pays out a fixed lump sum if the policy holder dies within the term agreed. This type of cover offers security that your beneficiaries can receive a specific sum, which can help you all plan for a time when youre no longer around.
Lets See How A Term Life Insurance Coverage Would Work In A Real
Lets say youre 35 years old and working full-time along with your partner to provide for your two young children. You want to protect your familys income if something were to happen to you. So, based on your needs, you decide to purchase $1 million worth of level term coverage for a period of 20 years.
You estimate that this amount of protection would be enough to replace your income and help your family live a comfortable life while paying the mortgage, monthly expenses, and college tuition. Owning a level term policy guarantees you pay the same premiums during the policys term. You like knowing that you have predictable financial protection with a death benefit.
If you pass away at any point while you are covered with the 20-year term, the insurance company will issue your beneficiary a lump sum payment of $1 million.
On the other hand, if you outlive the term, you may choose to end or extend your coverage or convert it to a permanent policy. Its usually around this time that your financial responsibilities decrease, for instance, your mortgage may be paid off and your children may be out of college. If that is the case you may not need the same coverage as you did when you originally applied.
Whatever the case, the term insurance will have served its purpose of shielding your family from financial hardship during those critical years.
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How To Arrange The Best Life Insurance At The Cheapest Rates
When considering your options, you will find it useful to speak with someone. Specialist life insurance advisers can provide you with bespoke guidance. They gather your information and discuss your priorities so that you can be guided to the best options for you. Commonly, you will find the advice companies that offer the best rates for your life insurance have access to the whole market and you should try, where possible, to look for this in the company that you choose.
Good life insurance advisers will also provide you with expert guidance on how to arrange your policy in a trust. This allows you to nominate your beneficiaries and protects the payout from any potential inheritance tax. Trusts can cost upwards of £250 to arrange through a solicitor but again, a good life insurance adviser will include this in the service that they provide. And because many specialist life insurance brokers are paid by the insurance company, it normally won’t cost you anything.
At Money to the Masses we have closely vetted a specialist life insurance company that provides all of the above. You can arrange a callback from one of the advisers by completing this form*. You’ll even receive up to £100 cashback when you arrange your life insurance.
How Do Level Term Life Policies Work
When compared to cash-value permanent life insurance, Level Term Life Insurance policies are more straightforward and have fewer moving parts.
The unmovable parts of level term life insurance policies are the same with almost every company:
- The death benefit will remain the same over the life of the policy
- The periodic premiums will remain the same over the life of the policy
- The policy expires and the end of the preselected term
- There is no cash value component or interest earned
As with any type of life insurance product, there will be underwriting involved which typically consists of a life insurance medical exam , an application that contains health and lifestyle questions, and various electronic reports.
You can expect in almost every case that the insurance company will request reports from the Medical Information Bureau , reports from a Prescription Drug database, and a report of your driving record for the last 3 to 5 years.
Once the underwriting process is complete, the underwriter will assign a health classification to your application and then your insurance rates will be calculated accordingly.
Lastly, the cost of your term life insurance policy will also be affected by the cost of any optional riders that you choose to purchase.
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How Is Art Different From Term Life Insurance
Both ART and other term life insurance policies are temporary in nature. Nevertheless, there are several key differences between them.
|Term Life Insurance|
|Typically, the term period lasts 10, 20, or 30 years||The policy lasts for one year|
|Generally speaking, the premiums remain the same throughout the term||Your premiums increase every year or every few years|
|Most term life policies are convertible â that is, you can convert a term life policy into a permanent one||Annual renewable term life insurance policies might not be convertible|
|Term life insurance is suitable for various needs.||Suitable only for very short term needs.|
Level And Decreasing Term Life Insurance
While premiums are generally consistent for the term of the policy, level and decreasing term policies differ in their payout structure. As the names imply, decreasing term policies pay a lower death benefit over time, while level term policies maintain the same death benefit for the term of the coverage.
For example, if you purchased a 20-year $500,000 level term policy, should you die at any point during the 20 year term due to a covered event the beneficiary would receive a $500,000 payout. However, if you purchased a decreasing term policy, the payout would change depending upon how long the coverage was in-force. So if you pass after 10 years, the payout may only be $250,000 . To illustrate this example:
This policy can be particularly useful if you have a particular outstanding expense or loan, such as a mortgage loan which would be reduced over time, that your family couldnt cover payments for without your income.
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