How Does Term Life Insurance Work?
Getting a Term Life Policy
Term policies make a very viable option for people looking for a reasonably priced life insurance policy. You may go online or call upon a few insurance agents to compare the expense payable towards premiums and also the amount of money that the beneficiary would get in the unfortunate event of your premature death. You may not necessarily be required to undertake a complete medical examination but the insurance company would ask you question pertaining to health check up records. Before you go ahead with such a policy you should know how does term life insurance work.
Basics of the Policy
You would understated that a term life insurance means that you are provided coverage for a limited period of time that can vary from one to twenty years as per the policy you may chose to have. Should you fail to pay premium, the policy naturally gets cancelled. If you expire at some stage when the policy is still live and valid, your nominated beneficiary is eligible to get the death befit as specified in the policy. For instance you may have an insurance coverage of $150, 000 for a term of ten years and you unexpectedly die in the eighth year then the beneficiary would get the total amount of $ 150,000. However, if you had not paid your premiums, you policy would be treated as cancelled before the expiry of the term. Since the insurance company doesn’t expect you to expire through the duration of the term, it charges you low premiums, which are affordable. This is an important aspect of knowing how does term life insurance work.
Reaching the End of the Term
As the term of the policy is completed, it gets expired and the beneficiaries are not entitled to obtain anything. At that stage the insured has two options. One is to get the policy renewed for additional term by paying higher amount as premium, as with growing years, the risk of the insurance company increases and so does the premium. Yet, certain policies don’t offer this facility of extending the term of the policy after the insured has reached a specific age. Generally there is no guarantee of getting such policies renewed. The other option is to change the policy to a permanent life insurance policy. You have to ask for this conversion prior to the expiry of your present policy. Though the amount of coverage remains unchanged, you are required to pay higher premiums. You are allowed to keep the policy alive for as long as want, irrespective of your state of health and age provided you keep paying the premiums. That makes another important point for understating how does term life insurance work.
Other Options Needing Consideration
Though term life insurance is an option, you may consider other options available prior to buying a policy. The two other popular options are offered by way of universal and whole life policies. Both these policies are permanent. On opting for a whole life policy you also build up cash value, allowing you to procure loan by offering cash value as collateral to the insurance company. In case of death of the insured, the beneficiaries are guaranteed to get death benefits, minus the loan amount, if any. Universal life policy is akin to whole life with a few differences. For instance, it allows you to pay bigger premiums, enabling you to quickly accumulate your cash value. You may not pay premiums when you have built up sufficient cash value to cover your premiums. It helps discussing various aspects with a reliable and experienced agent before making a final decision on the policy.