direct term life insurance definition
When making your life insurance decision, the main thing you need to know are the differences between term and whole life insurance. The easiest way to remember the difference is to think of term as temporary insurance and whole life as permanent insurance which remains in force until the day you die, or until you are 120 years of age, whichever comes first. In general it makes sense that a person would want “permanent” life insurance rather than something that will only last for a particular number of years, but your decision might not be quite that simple. It depends on why you need it and the amount of coverage you need.
People purchase Term insurance which is usually in force for periods from 10 to 30 years when they need a large face value for a limited time period. For example, you might have a large mortgage that would need to be paid (learn about mortgage life) or children who are counting on you for college funding. You might have a spouse who is not able to replace your salary or a business partner who would need a large amount of money to pay off business debt or to train someone to take your place (learn about key man life). In any of those scenarios, the need for large sums of life insurance would most likely be temporary. A term policy might be a perfect fit. It will not gain cash value, and you cannot borrow against it, but you can’t do those things with your car insurance either, and yet you still pay it. At the end of the agreed upon term, you will usually have the opportunity to convert part or all of the policy to permanent insurance or to renew it for a shorter term, and at a higher price.
Permanent insurance, on the other hand, includes “whole life” and “graded life” and some other modifications that a knowledgeable agent will tell you about if they fit your need. These types of policies are generally designed to stay in force to the day you die. As long as you purchase one with a “level” premium and level face value, neither the premium nor the benefit will ever change. You will pay the same premium from the day you make the purchase until the day the policy matures, or you are deceased. Most policies mature at either age 100 or 120. If you live that long, the company will send you a check for the full face value of the policy. Many companies have “modified” policies which can have premium increases every five years, but which do not usually decline in face value. Simply ask for a policy with a level premium, and yours will never change.
A graded whole life is a type of policy designed for those who either can’t get anything else because of health issues, or who simple don’t want to take the time for health underwriting. If you make sure you get one with a level premium, your cost will never go up. The benefit, however, is modified for the first two years, meaning that if you die of illness in the first two years, your beneficiary will receive a premium refund plus interest. After two years or with some companies, three years the full benefit will be paid.