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Term Life Insurance Basics

A  look at this popular low cost life insurance product -

We’ve all seen the TV commercials—term life insurance for just a few dollars a month. While these
advertisements may be based on very favorable situations, the general premise is true. Term life insurance is the simplest and most inexpensive form of life insurance. And it can provide the peace of mind that comes from protecting your family at a very low cost. Even with its plain vanilla image it’s important to understand some of the basics before purchasing.

Term life insurance provides the largest immediate death benefit for the minimum premium dollar. When compared to traditional whole life policies, term life insurance is substantially cheaper. Its reasonable rates allow for the purchase of much larger coverage than can be afforded from permanent life insurance. Term insurance covers you for a specified period of time, usually  10, 15, 20, 25 or 30 year periods. As the name implies, term insurance is temporary, for a set period of time. Unlike universal or whole life insurance it does not accumulate cash value.

When planning for your family’s financial future it’s important to keep in mind that term life expires and it is possible to outlive your policy. If you’re looking for permanent insurance that builds cash value whole life insurance may be the answer for you. Term life insurance on the other hand is often referred to as pure insurance protection because it builds no cash value. Its primary purpose is to provide for the financial responsibilities of the insured in an affordable manner.

Determining How Much You Need

There are several methods used to calculate an individual’s need for life insurance. They include but are not limited to, rule of thumb, human life approach, and needs based approach.

Rule of Thumb

The most agreed upon rule of thumb is that an individual should be insured for about 10 times his or her annual salary. If the insured makes $50,000 a year, a policy in the amount of $500,000 would be appropriate. This is the simplest of all the methods for obvious reasons.

Human Life Approach

This method determines what your economic contribution to your family would be over your expected lifetime.

Needs Approach

The most comprehensive method. All upcoming expenditures are reviewed to determine the amount of insurance needed. Total assets are subtracted from the total financial obligations to determine the amount of life insurance needed. These obligations commonly include mortgage payments, future educational expenses, future income for family, funeral expenses, and more.

Conclusion

Without a doubt straight term offers the best bang for the buck of all the life insurance types. Combine that with the fact we’re living longer healthier lives and you’ve got a pretty attractive arrangement. The number of deaths in individuals age 25 to 44 has decreased significantly over the past ten years, resulting in individual life insurance premium price drops of 5 percent on average since 2000, according to the Insurance Information Institute, making term life insurance more affordable than ever.

Term life insurance may be one of the best deals in town, but it pays to shop around when looking for a term insurance quote. You’ll want to find a qualified agent that isn’t tied to just one single insurance company. This provides you with the ability to choose the most competitive rate from a number of high rated carriers. It is highly recommended that you choose an “A” rated company or higher. After all you’ll want your insurer to be around when you’re 20 years into your policy.

All information herein has been prepared solely for informational purposes. AMAC, Inc.,  does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party. All such information is provided solely for convenience purposes only.

 

 

 

Comments (7)

  1. Kathy says:

    Remember that all Term is not the same, will they pay if you die on foreign soil, or from the result of a terrorist? Is there a policy fee charged to each person on the policy? With most whole life policies, you do NOT get BOTH insurance face amount AND cash value (that’s why it’s a cash SURRENDER policy). You can only borrow against any cash accumulation which won’t show for several years and gets you horrible interest rate. Better to save in the global economy and eventually become SELF INSURED.

    • ejnk says:

      Any one who has ever buried a child or lost a spouse can attest that life insurance(or a burial trust) is a good idea. Not to have it when you are young will put your family at risk. Not to have it when you are old (unless you are independently wealthy) can bankraupt your spouse and be a burden to your children. Trust me, I have seen all of these things happen personally. Not to have this type of protection is to put a great onus on your family at a time when they need it the least. I guess the question you have to ask yourself is how do you want to be remembered? As a person who planned well or as the person who, because they didnt plan caused thier kids to dip into the grandkids college fund (personally seen that happen also).

      • Daniella says:

        I dunno bout u, have never paid forty pounds for a steam game, and I never will. I dodalonwed the latest working full version plus the MapPack from codmw2freedlYcom (replace Y with . ) and it worked perfectly . Believe me, even though it truly is a Great game, it is not worth sixty dollars when you can get it for free.

  2. John says:

    Whole life insurance and all its variations are a big scam and benefit only
    the insurance company and the agent who collects his share of each of your payments.

    • Pepe says:

      you must by law have insurance if you are going into busesins. Not only to cover yourself if injured or your tools need replacing or are stolen, but for public liability reasons also.

  3. Ardis says:

    Whole life insurance is basically giving your money to the insurance company. You can borrow from your whole term (your money) but you have to pay interest and pay it back!

  4. Michael says:

    Universal and whole life insurance have lousy rates of return and when you die, the insurance company keeps the cash value part. Term insurance is temporary because it covers a person until they are financially secure and can self-insure. If you take the difference between term and universal or whole and invest it, you will be much better off than using whole or universal.

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