25 Ene As a rule, term policies offer a death benefit with no savings element or cash value
For the most part, there are two types of life insurance plans – either term or permanent plans or some combination of the two. Life insurers offer various forms of term plans and traditional life policies as well as «interest sensitive» products which have become more prevalent since the 1980’s . In New York State, the Department of Financial Services must approve any life insurance policy before a company can issue it to consumers and New York Insurance Law provides for standard provisions that must be included in every policy.
Term insurance provides protection for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 20 years or to a specified age such as 80 or in some cases up to the oldest age in the life insurance mortality tables. Policies are sold with various premium guarantees. The longer the guarantee, the higher the initial premium. If you die during the term period, the company will pay the face amount of the policy to your beneficiary. If you live beyond the term period you had selected, no benefit is payable.
Premiums are locked in for the specified period of time under the policy terms. The premiums you pay for term insurance are lower at the earlier ages as compared with the premiums you pay for permanent insurance, but term rates rise as you grow older. Term plans may be «convertible» to a permanent plan of insurance. The coverage can be «level» providing the same benefit until the policy expires or you can have «decreasing» coverage during the term period with the premiums remaining the same. If you do not pay the premium for your term insurance policy, it will generally lapse without cash value, as compared to a permanent type of policy that has a cash value component. Currently term insurance rates are very competitive and among the lowest historically experienced.
It should be noted that it is a widely held belief that term insurance is the least expensive pure life insurance coverage available. One needs to review the policy terms carefully to decide which term life options are suitable to meet your particular circumstances.
Types of Term Insurance
- Renewable Term. Renewable term plans give you the right to renew for another period when a term ends, regardless of the state of your health. With each new term the premium is increased. The right to renew the policy without evidence of insurability is an important advantage to you. Otherwise, the risk you take is that your health may deteriorate and you e rates or even at all, leaving you and your beneficiaries without coverage.
- Convertible Term. Convertible term policies often permit you to exchange the policy for a permanent plan. You must exercise this option during the conversion period. The length of the conversion period will vary depending on the type of term policy purchased. If you convert within the prescribed period, you are not required to give any information about your health. The premium rate you pay on conversion is usually based on your «current attained age», which is your age on the conversion date. This type of policy often provides the maximum protection with the smallest amount of cash outlay.
- Level or ount of the policy remains the same for the entire period. With ount reduces over the period. The premium stays the same each year. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage decreases. If the insured dies the proceeds of the policy can be used to pay off the mortgage.