Can You Identify Different Types of Term Insurances?

Level term. Renewable term. Convertible term. Decreasing term. *scratches head* What the heck do these mean? Like most people, getting educated about different life insurance policies can be a real headache, but it’s definitely worth doing the homework.

The Basics – What exactly is term insurance?

Like the label indicates, “term” refers to temporary insurance since it only provides protection for a specified period of time. The only method of continual protection is to renew the policy. Term insurances have two main characteristics: 1) they have lower premiums since they only cover mortality and expense costs and 2) they do not build cash value. Each time a term policy is renewed, the company will do one of two things: 1) reduce the death benefit or 2) increase the premium. Why do they do this? Because each time you renew your policy, you become a higher risk to the company (In other words, death may be more imminent.) One may think that they’re evil, but the company has to make money to survive. Moving on…

Level Term

Level term is usually the least expensive form of individual insurance. Why is it called level? Because the death benefit remains the same; however, the premium increases each time the policy is renewed.

Decreasing Term

Decreasing term means that the death benefit will gradually be reduced in scheduled steps eventually reaching zero depending on the life of the contract. Each decrease usually occurs annually. Although the death benefit decreases, the premium usually remains the same. People usually get decreasing term to protect things such as mortgage or other types of liabilities that you eventually pay off.

Increasing Term

Opposite of a decreasing term, the death benefit increases in scheduled steps along with the premium payment. A common use of the increasing term is for those who feel that their income will gradually increase, thereby enabling them to afford a bigger death benefit with higher premiums.

Term Option #1: Renewability

“This option allows the insured to continue the same policy for an additional period of time, (the same as the initial period), before its termination date without having to prove evidence of insurability. The premiums for the renewal period will be higher than at the “original age” of issue to reflect the insured’s “attained age” and the insurer’s increased risk. “Original age” is defined as the insured’s age as shown in the insurance contract @ the time the policy is issued. “Attained age” is defined as any future age after the date of policy issuance.” – taken from the Life Agent Manual 12^th Edition, Benchmark Education Corporation.

Term Option #2: Convertibility

“This option gives the insured the right to exchange the term policy for a permanent plan of insurance w/o evidence of insurability. The conversion premium is calculated @ either the insured’s current or “attained” age or based on the original age when the term policy was issued. This option allows the insured to purchase temporary insurance protection until permanent coverage is affordable.” – also taken from the Life Agent Manual

Conclusion: Is term insurance right for you? If so, which form suits you best? You must look @ your individual situation & ask yourself what your needs are before making a decision. Consult your financial advisor.

Why Get Life Insurance?

What’s the difference between paying for life insurance and paying for other insurances such as property, casualty, car, and health? The answer is simple! Life insurance (which I’ve heard people call death insurance), is securing something that is certain to happen – the ultimate matter is WHEN, HOW, WHERE, & TO WHOM. For the most part (factoring in suicide) we don’t know! Anyway, too often I see younger folks snicker @ me when I mention that I have life insurance. They wonder, why? – “That’s for old people,” they’d say. Well, the answer to why is simple too! ‘“Economic security is provided not only in the event of “physical death”, but also to provide income to the insured beyond retirement [given the policy has cash value].”’ – California Life Agent Manual 12^th edition. So if you have loved ones that you care about and/or you want a vehicle that may help you with retirement, life insurance is highly important to protect those you love and perhaps even yourself.

Referring to the previous post on investing early, life insurance is also a form of investment! Why? The sooner you start, the sooner the insurance policy kicks in. The sooner you start, (depending on vehicle is suitable for you) the more money builds up! The sooner you start, the more chances that your health won’t cause the price for coverage to increase – since younger ppl are generally healthier & get less sick!

So what type of insurance should you get? Well, that all depends on differing conditions & personal suitability. This is not a one-size fits all deal. You MUST do your homework for this one and even if you do find a company that is good, you definitely should make sure you do your yearly reviews – great reminder that you have the policy. Plus, if your financial situation changes, you should definitely find ways to make suitable adjustments.

Conclusion: Life insurance is not just for the old. If you care about those you love, set aside money for them.

Start Investing Early – Rule of 72

Ever heard of the rule of 72 in school? Well, if you haven’t (like most people), then it’s because school doesn’t really take the time to teach you things that are valuable in terms of managing your finances & preparing for your future. Yes, they teach us math, science, history, English, and specific classes depending on our areas of interest, but have they taken the time to teach us about handling our own finances? No, they just tell us that if we get an education, we’d get more pay – the one thing pretty much everyone strives for (Read Rich Dad, Poor Dad). But for what? To live a comfortable life or worry-free life, right? I think that if school implemented ways of teaching students about money management & ways to invest for a better future, we’d all be better off today as a whole. Anyway, I somewhat digress…

Back to the subject, I thought I’d bring up the rule of 72 for those who are thinking of investing their money in vehicles that have fixed annual interest rates. The key thing to remember here is compound interest. If you take 72 and divide it by the interest rate that you are receiving, that number indicates the number of years it will take for your money to double. Thus, the more you put in while you’re young, the greater & quicker the return. Of course, the rule does become less precise as the interest rate becomes higher. See wikipedia for more information.

Today, I hear a lot more people @ younger ages investing & that’s great! But I feel that so many people still don’t understand that investments aren’t just meant for the older folks. Although the market goes up & down, in the LONG-TERM (if you look at yearly market charts side by side), it has been increasing. So if you’re going to invest in these types of vehicles, START EARLY. DON’T look @ the short-term because that’s where people make their mistakes. I bring up the market because certain investment vehicles don’t have fixed rates – they fluctuate. But in the long-term, the rule still applies.

Some people think they’re too poor to invest, but if you take away the junk food & impulse buy on items such as clothing & games, you’ll have plenty to put in – trust me.

Conclusion: Start investing while you’re young. Think LONG-Term NOT short-term.