Money Management

Need Term Life Insurance? Read This

Before you buy term life Insurance read this!

Did you know that there is a product called Term Life insurance and it is designed for specific needs? Here are some thoughts to consider about term life insurance.

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When your agent talks about term insurance he/she is speaking about pure death protection with little or no lifetime benefit.

 Here are 5 important things to consider before you buy term insurance.

  1. When the need for life insurance is temporary

Let's assume a parent has adequate income to supplement college expenses on a pay as you go basis and adequate life insurance for other purposes. The parent might use term insurance to assure payment of a child’s college education expenses. In the event of the parent’s death during the child’s college years the term insurance is used to replace the lost income. For this type of need, a five-year non-renewable term policy might offer the best cost-benefit relationship. In the event of the breadwinner's death, decreasing term policies are often used to pay off mortgages on the family’s primary residence or the family’s vehicle.

  1. When the need is long-term but cash flow is low

                 warren-wong-275574-girl-sitting-in-the-middle-of-distant-paved-road-unsplash image Families often have major long-term support obligations for their young children and spouses. They may have committed expenses that already strain the family’s budget and simply cannot afford the more expensive ordinary whole life insurance premiums. Term life, especially at the younger ages provides the greatest possible coverage for the lowest premium outlay. When the family breadwinner moves into his or her higher earning years and can afford the higher premium outlay, it is often wise to convert to ordinary whole life insurance.

  1. When the policyholder has better investment opportunities outside the insurance policy than inside the policy

           If the policyholder has investment opportunities that will pay a higher tax-free, it may be better to buy renewable term insurance. The early years’ premium savings can be invested outside the insurance contract. However, this strategy should not be based solely on differentials in potential yields inside and outside the policy. The cash value policy may offer many different features not available on the outside investment.

  1. To guarantee a saving fund

Many parents set up a savings program for their children’s college educations well before their children start college. A decreasing term policy is often a perfect vehicle to assure the necessary savings fund if the parent dies before the funding is completed.

  1. For liquidity in the event of death.

    One major life insurance application is to provide estate liquidity and to pay estate and inheritance taxes. Because of the ages typically involved, term insurance applications for estate planning and estate liquidity purposes are rather limited. Various types of term insurance such as level, decreasing, and increasing can be combined as riders with other types of permanent insurance. This creates packages that meet a person’s special death protection, savings,  and affordability needs.

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