What is Term Insurance?
Common term insurance plans provide coverage from as little as one year up to 40 years (or age 65). The premiums paid during that term are set and won’t increase in cost. At the end of the term, the policy must be renewed for coverage to continue. If the policy is renewed, premium payments will typically be higher during the next time period.
How Term Insurance Works
Term insurance secures a death benefit as long as the policy is in force. If the policy is not renewed after its term ends, the death benefit is no longer valid. Think of it in terms of renting a life insurance policy, as opposed to owning one.
While there is no cash value to these term insurance policies and your premium is a bit higher, later in life you could receive the money back that you paid in premiums. In comparison to term, permanent insurance is an asset you own providing lifetime coverage and a guaranteed death benefit.
As a wealth building and planning tool when affordability allows, astute insurance brokers will recommend term insurance plans that can be converted to permanent insurance plans designed to protect you for life with level premium costs, regardless of your health.
Benefits of Term Insurance
What makes term insurance appealing, is its affordability for families and individuals with dependent children or on a limited income. Term insurance also provides you with the ability to have temporary protection while managing debt. As your disposable income increases, you have the option of converting over to an asset generating permanent life insurance plan.
Term insurance is also a better alternative to traditional mortgage insurance because of premium structure and its ability to provide significantly better coverage. When you purchase a mortgage policy through your bank, they own the policy and designate a beneficiary of their choosing. Mortgage insurance also declines as your mortgage balance decreases, yet your premium costs stay the same. Mortgage insurance rates aren’t always guaranteed either.
The tax-free death benefit provided by term insurance gives you more financial control and can be used in lieu of mortgage insurance to pay off your remaining mortgage. You designate the beneficiary to receive the death benefit. Your coverage also stays intact, even as your mortgage amount decreases. Your rates are also guaranteed for the life of the policy.
If you are a new business owner, term insurance can provide affordable protection for your assets and business while freeing up cash flow to cover overhead and start-up costs. And, if you are the owner of a larger business enterprise with employees, term insurance is an economical choice for group or employer sponsored plans and can also assist you in funding key-person insurance and buy-sell agreements.
Term insurance is a personal solution if you’re…
- In need of insurance protection to cover your mortgage
- Wanting to provide your family with a tax-free death benefit but can’t afford higher premiums of permanent insurance plans.
- Needing to set aside funds to cover funeral expenses.
- Replacing your income so your family can maintain the same standard of living.
- Relieving creditor concerns for your loved ones, so outstanding personal debts or loans are paid off.
Term insurance is a business solution if you’re…
- Wanting to protect your business interests by funding a buy-sell agreement to ensure a smooth transition of ownership from the deceased to surviving owners.
- Needing to fund key-person insurance to cover the cost of replacing and retraining a key employee and minimize disruption to your business.
- Providing your employees coverage as benefit of employment.
- Wanting funds to pay off business debts or loans.
- Needing working capital to keep your business running without having to tap into your personal savings.
- Wanting to give peace-of-mind to key stake holders and shareholders that funds will be available to carry on business.