jacksonville mortgage refinancing: The Basics of Term Life Insurance

Should you "buy term and invest the rest" or fuel your life insurance with "the power of cash value"?

Term life insurance is often touted for its "pure insurance protection," which includes none of the cash value features inherent in whole life policies. Term life insurance covers you for a specific period of time - usually 10, 15, 20 or 30 years. You can also buy term insurance that covers you until you reach a certain age, usually 65 or 70. Term insurance policies expire at a set time and if you don't die within the term there is no pay-out of the policy. If you do die within the term, your beneficiaries receive the money tax-free.

Generally, you purchase term life insurance to protect your loved ones from debts or provide for short-term obligations. For example, if you and your spouse own a home and you were to die tomorrow, your spouse would have to pay the mortgage on his or her own. If you had a term life insurance policy, your spouse could receive enough money from the policy's death benefit to pay off the mortgage.

Term insurance doesn't just cover specific debts, however. If you have children, term insurance can protect your family's finances, providing money for college and living expenses if you die before your children are fully grown.

Medical exam is usually required

When you apply for term life insurance coverage, the insurance company will probably require a medical exam before issuing a policy. The examination is basic, covering your height, weight, medical history and blood and urine testing. With the blood and urine tests, the insurer looks for specific medical problems. Positive results could affect your premium, or even your ability to buy a policy.

Smokers will pay more for life insurance, although cigar smokers might get less expensive premiums than those using cigarettes. If you smoke marijuana, but not cigarettes, you still must admit to being a smoker on the policy application. Insurers don't generally differentiate between different types of smoke inhalation. (Marijuana users must also disclose their drug use.)

Different flavors of term

As you age, the likelihood you will die sooner increases. That's why older individuals pay more for life insurance. However, affordable term life insurance is possible if you shop around. If you are looking for low cost term life insurance, you can lock in low premiums by buying for a "level term" policy. That means for a specific time period, say 20 years, your premium rate stays the same. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam, although your premiums will rise for the next term - often substantially.

A less popular policy is "annual renewable term." This gives you coverage for one year with the option of renewing it each year for a specified duration, such as 20 years. With this policy, your term life insurance rates will go up every year you renew and are calculated based on the probability of your dying within the next year.

If you'd like to have term life insurance in place to provide for beneficiaries yet you are confident you'll outlive the policy, you could consider "return of premium" term life insurance. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back. It pays to shop around for a policy like this, but on the low end you can expect to pay 50 percent more in premiums than comparable traditional term life insurance.

If you have trouble finding life insurance because of illness or a troubled medical history, you can turn to guaranteed issue life insurance coverage [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x], sometimes called "quick issue" or "simplified issue" insurance. Guaranteed issue policies require no medical exam, but you pay a higher premium in exchange for the guaranteed coverage. That's because the insurance company takes on more risk in insuring people without knowing their medical condition. Guaranteed issue policies can require waiting periods before coverage kicks in. They might be the only option for some people. A life insurance broker can search the marketplace for a guaranteed issue policy that meets your needs.

How long a term?

Figuring out which term you should buy - 10 years, 20 years, 30 years or some other number - requires a major review of your debts, financial needs, dependents' needs - and when all those might change. Jack Dolan of the American Council of Life Insurers suggests you ask yourself, "When will my dependents reach financial independence?" Also look at major debts, such as mortgages or other loans, and when those are due to be paid off.

Guenther Ruch of the Wisconsin Insurance Commissioner's office says it's a good idea to review your life insurance needs carefully, both when you buy the policy and on a regular basis throughout your life. "You may not have the coverage you need. You may have more than you need," Ruch says.

Ruch has the following recommendations for anyone buying life insurance, or anyone who already has coverage:

Schedule a routine "check-up" with your insurance providers at least once a year.
Shop around when you're in the market for a new policy. Term life insurance rates vary considerably among insurers.
Remember, an insurance policy is a legal document. Read it carefully and make sure you understand it.

"Perhaps you want to leave assets for your heirs, or for charity, or you need the death benefit for business-planning purposes. These are all areas where life insurance can play a role, but it's really designed for financial protection," Dolan says.

Term vs. whole life insurance: The cash value debate

Variable universal life insurance (VUL), a form of permanent life insurance, is popular because it offers a cash value that may build up with interest over time. The interest earned is based on the performance of the stocks, bonds, or other investment portfolios in which you choose to invest your premiums.

Some financial planners advocate VUL policies because they force you to save money in the cash value component. Others recommend you buy term insurance for the cheaper premium, and then invest the money left over in mutual funds or other investments. VUL also allows you to change your death benefit and subsequent premium payments over time.

Cash value in life insurance should not be considered a traditional investment because any partial withdrawals or loans will reduce your death benefit. Also, if you withdraw your cash value in an amount exceeding the premiums you have paid into the policy, you will face a tax bill. In addition, every year you own the policy, more of your premium goes to pay for the cost of insuring you and less goes toward the cash value.

Amy Danise is a staff writer for Insure.com. Visit Insure.com for a comprehensive array of comparative auto, life and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not available from any other single source. Insure.com is dedicated to providing impartial insurance information to consumers. Visitors can obtain instant quotes from more than 200 leading insurers, achieve maximum savings and have the freedom to buy from any company shown.

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Friday, November 23, 2012

The Basics of Term Life Insurance

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