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Decreasing, Level and Annual Renewable Term Life: FAQs Answered
If you need life insurance and are on a tight budget, Term Insurance is the least expensive and may fit your need. It will give you a large enough benefit to protect a mortgage, a growing family, or a business, and when you no longer need it, you can simply cancel it. You pay a low premium for a set period of timeвЂ”the “Term,” and usually the policy allows you to include selected riders, such as spouse term, disability rider, child riders, and more. At the end of the Term, you will likely be able to convert the policy through the same company. It seems pretty simple, but there are different types of Term policies and even some things to avoid.
Level Term Life is the most common type of Term Life. Your premium and face value remain unchanged for the duration of the Term. If you no longer need the insurance, you can simply stop paying and cancel the policy. There will be no refund because Term does not build cash value.
Decreasing Term Life is commonly sold as Mortgage insurance, although you can convert a level Term to Decreasing, and, with some companies, can purchase Decreasing Term right from the start. The initial benefit will probably be higher than Level Term for the same premium, but over time the benefit gradually reduces. Your premium should remain unchanged. In the last years of the policy, the benefit will be very small. This type of policy is okay if your purpose is to cover a large debt which will be paid down at roughly the same rate as the decrease in the policy. Given the other options, many people do not want a policy that pays less as time goes on.
This type of Term policy is often the result of converting a level term. Your benefit remains unchanged, but your premium will go up every year as you get older. Most people would not buy Annually Renewable initially, but if you have a Level Term about to expire and have health issues, Annual Renewable Term could be a way to maintain coverage.
Modified Term Life Insurance is probably one type you want to avoid although numerous companies offer it as mail order Life Insurance. The word “modified” simply means that several features of the policy could change over time. The premium is the most common variable feature as it could increase periodically, often every time you enter a new five year age band. The benefit usually remains level, but it could be a “graded” Term. Graded policies are for people who are uninsurable; because there are few, or no health questions. The policy will return premium only for the first two or three years. If you need a graded policy, you might be better off with a whole life option.
Accident policies are frequently offered by banks and credit unions as a “member” benefit. You may have a small policy simply as a feature of having an account, but the company will offer additional coverage for an additional price. Unless you have a high risk job and want an accident policy in addition to other life insurance you may have, you probably don’t want a policy that only pays if you die in an accident.
Read beforeвЂ”and afterвЂ”you buy! You can use our convenient site to learn more about our preselected companies and what they offer. But after making your purchase, read the policy, or ask your agent to go over the details. The most disappointing aspect of life insurance occurs when a loved one dies, and the policy isn’t what they thought it was.