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Protect Your Family
Protect Your Family
We generally protect our families with insurances such as auto, homeowners, life, mortgage, long term care and health insurance. The reason why we need these different instruments is to protect our liabilities.
Term life insurance is often referred to as “pure insurance” because it involves only the payment of a premium in exchange for a promise to pay a death benefit in the event of your death while the contract is still in force.
Term life insurance provides protection for a specified maximum period of time and is usually renewable at the end of each period at progressively higher premiums. As you get older, your risk of dying increases, so the cost of term insurance goes up. Term insurance carries no cash value element, making it less expensive than permanent alternatives.
Annual Renewable Term
Annually renewable term (sometimes called Yearly renewable term, YRT, ART) is an example of a term insurance policy which has a constant face value and premiums that are adjusted upwards each year to reflect the increasing probability of your death in any given year.
Decreasing Term Insurance
Decreasing term insurance refers to a type of annual renewable term life insurance policy with a decreasing death benefit (face amount) and level premiums. Decreasing term is ideal for insuring a liability that is gradually being paid off, like a home mortgage.
Five, 10, 15, 20 and 30 Year Level Term
If you prefer, you may se1ect a “level term” policy which guarantees you a level premium for a number of years (usually 5, 10, 15, 20 or 30) and a level death benefit for the same period.
The longer the guaranteed term, the greater the initial premium, but the longer the premium stays fixed. In most cases, if you know you will need your term insurance for a long period of time, a level term policy will prove less costly than an annual renewable term policy.
As the name implies, permanent (cash value) insurance is best suited for the individual with a long term (often indefinite) need. A permanent policy is really a combination of “pure insurance” and an investment element. Premiums are considerably higher than term rates in the beginning years, and may include an increasing death benefit, a “cash value” associated with the policy, and tax-advantaged borrowing privileges against your cash value.
There are two unique types of permanent insurance. Each has it’s own benefits and disadvantages which must be weighed carefully.
Whole Life Insurance
This type of coverage covers you for as long as you live. Usually, this type of policy has a level premium for the life of the policy. Initial premiums are high, compared with term insurance premiums, but eventually they become lower than the premiums you would pay if you had kept renewing a term policy.
Universal Life Insurance
With Universal Life coverage, which also covers you for as long as you live, you can vary your premium payments and the face amount of your coverage. Most of your premium payment goes into an account, which earns interest. You may borrow against the cash value, but eventually, if the balance continues to drop, your coverage will end. To prevent that, you would have to start making premium payments again, increase your premium payments, or lower your death benefits. Generally, your policy will state that it will pay the premiums from the cash value of your policy.
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