When others live off you, you need to think of building backwaters. Because if you are up and die, there are going to be troubles in the lives of the ones who depend on you. You very well know this. And probably you are having monthly savings for them. This is the commonest way most people can traditionally think of in the first place for a solution. Without doubt, you are doing the right thing by saving your doughs for your dependents.
Or, like many others, you may also have created channels for generating extra-income through investments. For sure, it is another excellent approach.
Though often ignored, the third and easiest choice for you is to purchase life insurance.
Of all the types of life insurance policies, most will recommend that you buy level term insurance.
We will see into the what, how and why of level term life insurance here.
Why Life Insurance?
If you somehow believe in the authenticity of statistics, there are many people without any kind of savings out there. According to a June, 2016 CNBC report, an estimated 66 million of the American people have no emergency funds to fight off situations. On the other hand, investing is a far cry for the most. If you are on neither of the positive boats, you have little choice but to choose a life insurance policy. Life insurance should be the top-most priority on your financial strategy list.
Even if you have either or both of the options, savings and investment, you should not ignore the third option. It might even be wise to keep life insurance on top of all.
And it is reasonable.
Despite building back-up plans for financial defense for your people, substantial reasons remain there for worries about their future. Because neither of your strategies are fail-safe against the uncertainties of life, the future of your folks can be vulnerable any time. Life insurance as the third option comes up there. It bears the promise of taking care of your folks if you happen to fall a prey to an unpredictable end of life.
What Is a Term Life Policy?
In terms of duration, there are two opposite ways you may choose your life insurance policy to work for you. You may choose it to work for as long as you live. Or you may go for it to work a definite time span: the years you need it for. Term life insurance stands for the latter option, term meaning ‘a period of time’.
The choice of term, however, does not depend on you. For example, you cannot want it to make a 7-year term. Insurance companies have term packages from which you have to buy the term you want. The terms that exist out there start at 5 and its multiplications by up to 8 max.
Thus, there arise 8 types of terms: 5, 10, 15, 20, 25, 30, 35 and 40-year terms. While the first and last of the terms are very rare, the rest are more popular. On an average, the 20-year term policies make the highest sale.
If it so happens that you are interested in a 7-year term, you have to buy a nearest choice. That means you can either choose to buy a 5-year term or opt for a 10-year term policy. The extra-years choice will provide you extra protection for 3 years. On the other hand, the 5-year term will require you to renew the insurance to cover two more years.
What Is a Level Term Life Insurance Policy?
A one-liner definition of the level term life insurance policy reads: a term life insurance policy that guarantees a fixed cost throughout the entire term of the insurance. It is also known as traditional term life insurance policy.
Let’s go a bit deep.
A term life insurance is designed to provide a gross amount of money to your folks at your death. Because beneficiaries receive the benefit at the insured or policy buyer’s death, insurers call it the death benefit. For your folks to get it the preconditions are:
You don’t commit suicide within the first two years of the policy.
You die before your policy expires. And,
You pay up your premiums till last due date.
Yes, it is as easy as it sounds and these are basics of a level term insurance policy. Let’s learn a bit more about the level term.
The qualifier ‘level’ in level term has nothing to do with the policy’s being easy. It is level because of the cost payment method that it follows. With it, the rate never fluctuates either up or downward during the policy’s term. And this rule holds good so long as the term period continues. So, if your policy’s term is of 30 years and the monthly premium is $25, the cost will be the same throughout the 30 years.
This is the very reason the level period term life policy stands out apart from the pack.
Death Benefit: The Buy of Level Term
As many like to call it, level term is really vanilla type. You buy the policy in the form of a contract with your insurer for a pre-defined amount of money. In accordance with the contract, the insurer comes under Federal law obligation to pay the amount to your nominees at your death. Of course, the contract necessitates you to regularly pay the cost of the insurance from your side.
The Other Types of Term Life Policies
Besides the level term life insurance policy, the other types of term life insurance policies are:
Annual Renewable Term Life Insurance Policy: This version of the term life insurance policy lets you stay under protection on a yearly basis. There is no obligation for you to commit yourself to longer periods of insurance protection. You re-new or re-buy it for as many years as you find necessary.
Increasing Term Life Insurance Policy: In an increasing term policy, the death benefit keeps gradually increasing. Accordingly, the cost also rises regularly.
Decreasing Term Life Policy: As time passes death benefit goes down in the decreasing term policy. The cost, however, does not change during the term.
Return of Premium Term Life Policy: Unlike the popular notion of term insurance, the return of premium term policy returns all your premiums when the term comes to an end.
The Uses of Level Term Insurance Policy
As to how the death benefit of level term life insurance policy can be useful for the recipients is a subjective question. In fact, it practically depends on the user how the money will be used. However, for the policyholder to calculate its need, the following uses of the level term life insurance find consideration:
Repaying personal loans.
Disbursing official or institutional borrowings.
Paying for education of the dependent children.
Income replacement for the dependents.
Last rites costs.
What Makes Level Term Life Insurance Policy
For crystal-clear reasons, the level term life insurance policy is the most popular pack in the term life’s box. The reasons are:
It is the cheapest of all the term policies. The other types of term life insurance policies, namely increasing term, decreasing term and return of premium term are costlier than the level term insurance policy. You can sign your contract for literally tons of money only on a level term policy. So besides being inexpensive, this policy is also positive for offering a bigger coverage.
As we have already mentioned, a level term life insurance policy is a no-worry term life insurance policy. You get the deal and pay the cost till the expiry of the policy. God forbid, anything befalling, your folks will get the benefit.
So to say, level term insurance policy is the easy-pie type. It does not have the complexities that the other variations of term life insurance bears. It little affects your insurance if you fail to go through the terms and conditions of your level term policy as long as you pay the premiums. If you buy any other life insurance policy, reading between the line is a must for you.
Most people find it to be a user-friendly feature of the level term insurance that it bears conversion option. You can convert it to a whole life insurance if you want to.
Many also appreciate the aspect of level term insurance policy that they can extend it even when the term expires. Once the term ends and you go off insurance, you can renew it annually. Though this feature is not very comfortable as you pay higher costs for renewals, goodness lies in the fact that you can stay insured again.
There are 3 specific shortfalls of the level term life insurance policy:
As you have already known, if you do not renew the policy at expiry you go without insurance protection.
But when you want to stay under protection, you have to pay higher costs for it.
And when your contract ends, you have not a dime refund from the insurer.
What Life Insurance Mentors Say
We believe ten weak weaknesses are much weaker than one big and strong strength. A life insurance policy works like a candle in the days when there may not be any electricity around. As such, level term insurance is the holy choice you can wholly count on. It is the real leader to show you the path.