Unprepared families can end up spending a lot of money on a cheap term life insurance policy if they keep it too long. Term insurance can help protect your family against financial disaster. However, it is not a good idea to keep the same policy unless it is too late to get permanent coverage.
Term life insurance is temporary. It pays a fixed death benefit in the event that the policy holder dies within a certain time period. If you have a 20 year term policy, and you die before the 20-year mark, your beneficiaries will receive your policy’s face value.
The contract ends after the expiration of the 20-year period. Your premiums are kept by the company and you will need to get new insurance. This is usually at a higher price. Term insurance allows you to be prepared for the unexpected.
Term insurance, which is temporary and is not intended to pay back, is the most affordable form of life insurance. Term insurance is a good option for young families. It is often taken out to support children and spouses in the event that the primary breadwinner dies. This is a difficult task.
Many young adults don’t have enough savings or investments. Many of their funds are tied up in student loans and new mortgages. Term policies are a cost-effective solution.
As families age, the policy expires more quickly. Families should consider changing their term insurance to a permanent option.
Many term insurance contracts include a clause that permits policy holders to do exactly that.
It could be thought of as leasing insurance with the option to purchase. The convertibility clause allows you to convert without the need to purchase a new policy. Families can convert their temporary insurance to permanent insurance for a fee.
Conversion clauses are not available in all policies. Look for policies with the clause if you’re buying term insurance. These policies are more costly, but they are well worth the cost.
You might have a 20 year term policy that has a conversion clause of 10 years. You develop a serious health problem after nine years. The policy is still valid for the 10-year conversion period. You can convert it to a permanent policy. You will not have to undergo a physical exam again and your premiums will be lower than if you had health issues.
The policy would not have a conversion clause if it didn’t. This would result in an expiring policy as well as very high renewal premiums. Convert before it’s too late.
It is important to review your policy with your agent regularly. This will ensure that you don’t miss your conversion expiration. You should review your plan once you reach one year of convertibility. Take into account your finances, health, responsibilities, and goals.
When deciding whether to convert a policy, don’t forget about your health. You will pay more to insure the older you get. Your monthly premiums will be lower if you lock in a fixed rate early in your career and pay towards a permanent policy.
Your financial needs transform over time. As your family grows and changes, so do your financial needs. You may need a policy to provide income for your family and your children when you’re young. You may not need such a large insurance policy when you’re older, your children have grown up and your mortgage is paid off.
It is best to take a multiple your annual income. You only need enough insurance for your family to provide care for them for a few years and then get them back on their feet. You can consider buying something larger, such as 20 times your annual salary, if you are looking to provide care for them throughout their lives. This is enough to create a trust they can live off for the rest of their lives.
A strategy is to buy the biggest term policy that you can afford while you’re young. You can buy a smaller permanent policy if you have the funds to pay more.
Your term insurance will expire when your children are grown and your mortgage is paid off. Next, you can determine what coverage you need.
