LIFE INSURANCE

Term life policies are usually the least expensive method to purchase a needed death benefit and the most common type of policy issued.  The “term” refers to the number of years that the premium is level.  Common term policies are issued with level premiums of 10, 15, 20, 25, or 30 years and the longer the level premium term, the more expensive.  Most term life policies are guaranteed renewable and non-cancellable to age 95 as long as premiums are paid.  However, less than 1% of all term policies actually pays a death benefit.  This doesn’t mean that insurers are scamming people or refusing to pay.  It means that the vast majority of policy holders outlive the level term period.  Once the level term has expired, the policy premium increases each year according to the terms and conditions of the policy.  If an insured still requires a death benefit after the level premium term has expired and they remain healthy enough to qualify for a new term life policy, more than likely they can apply for a new policy with another level term premium at a far lower rate.

Permanent insurance typically provides “lifetime coverage”, although it can be designed to provide coverage to a specific age, such as 85 or 90.  Generally, these types of policies do not expire due to a permanent policy’s “savings” or cash value component.  Because of the savings or cash value component, premiums are much higher than traditional term insurance.  When you pay a permanent life insurance policy premium, a portion of the premium pays for the mortality cost of the death benefit purchased and the remaining portion is invested by the insurance company which generates accrued interest, building up the savings or cash value.  This cash value is the policy owner’s “asset” and can be borrowed as a policy holder loan or provide tax free income later in life.  It is important to analyze one’s needs, both pre and post death before purchasing a permanent type policy.