by Molly Smith 1 comment

First,let us start with what life insurance means. Life insurance basically insures your life or really it is about what to do when you die. Specifically, it should cover as much as your loss income since when you die, you can no longer generate income through working. However, your assets do remain intact and therefore, there is no need to really think about covering that.

So, what is term life insurance?.
As the "term" suggests, term life insurance covers only for a specific term before the policy expires. It is basically a temporary insurance that allows you to cover up to a certain critical life event such as college, retirement or children who are grown up enough to work. Term life insurance is different from permanent insurance since permanent insurance does not expire until you stop paying for your policy. The key difference is that term life insurance also do not pay you any benefits once the term life policy expires (though this may vary based on companies), whereas a permanent insurance puts a portion of your premium into an investment vehicle which can then be paid out depending on how well the investment vehicle performs over time. Due to this reason, term life insurance can have a lower premium any may be a much more suitable life insurance policy to take up for people with substantially lower savings or more financial obligations. Therefore, term life insurance is very similar to an auto insurance or home owners insurance because no benefits are paid out during the insurance period and after the expiry period unless some events such as a death or accident trigger the payout.

Why should I buy term life insurance?
This is really about protecting your loved ones. Hopefully, nothing happens to you, but when something does, at least your children and spouse are not left to deal with your debts, funeral costs, etc. Therefore, a life insurance policy allows you to use the payout from a death to pay off credit card and debts since you can no longer generate the income to help the household. In some ways, you are giving your loved ones a chance to have some financial stability in the event that you pass away.

How do I determine if I should buy term life or permanent life insurance?
It really boils down to the premiums you can afford and the life events that you are expecting. If you want coverage for approximately more than 10 years, have the ability to pay the premiums over the years, then you may want to have a permanent life insurance. However, if you just want to cover life events up to a certain point and have a limited budget, then a term life insurance may be more suitable for you. You may also combine term and permanent life insurance so that the mix can provide you a coverage that is more than the budget that is allowed.

What kind of term life insurance are there?
Annual renewable term life insurance is for a period of 1 year and can be renewed. The problem with that is that every year, there is an assessment of insurability and if some terminal illness occurs during the period, the insurance company can reject your renewal. Therefore, if you want to protect against that, you want to be able to look for guaranteed reinsurability in the program. Level term life insurance is for a guaranteed term such as 10,20 or 30 years. Again, if you need to renew the policy, insurability eligibility is required. It is not the norm to be able to borrow against a term life insurance.

What are some of the term life insurance companies out there?
To get an idea, you can go to State Farm Term Life Insurance.  You can learn of the many features it provides there and then you can make a comparison with other companies. You should choose a feature that best suits your needs. For example, there are term life insurance that they offer that insures for a period of 5 years and then can be renewed for the same term at a high premium till age 85.

Other bigger term life insurance companies include:

MetLife
Prudential
HSBC
 

You cannot borrow against a term life insurance. This is because term life insurance does not build up cash value unlike a whole life insurance. Therefore, it does not make sense to borrow against something that has no underlying value. It is the same question as asking if you can borrow against your car insurance. These insurance exists to pay out a benefit only when something happens, but will not refund you any value if nothing happens for the events they are covering for. Borrowing against a whole life insurance is possible though.

posted 7 months ago