Low Cost Life Insurance

Life insurance provides many necessary benefits, and it is an integral part of a solid financial plan. In the event of a person’s death, a life insurance policy can provide benefits such as covering funeral and final expenses, paying off a mortgage, making up for lost income, or funding a child’s future education expenses. Life insurance comes in a variety of forms, and it should be purchased based upon which type will best fit the policy holder’s needs.

There are two primary types of life insurance, term and permanent. For many years, the insurance industry has debated over whether term or permanent insurance provides the most overall benefit to consumers. While both types have their positives, it would appear that term is the better low cost life insurance alternative.

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Weighing the Options

There are factors to consider when purchasing life insurance. First, one must decide which type of policy is right for him or her. Next, the policy holder must choose the right amount of coverage. Although approximately 80 percent of American families own some life insurance, most acknowledge that their coverage is not enough to meet their estimated future needs.

Term Life

Term life insurance is the simplest form of coverage. As a low cost life insurance product, term is affordable for most consumers. Term life insurance is considered to be temporary coverage. When the policy holder dies, term life insurance pays the face amount of the death benefit to the named beneficiary.

Term is considered by some as pure life insurance coverage. Many opt for this type of policy, based on its low cost and the ability to purchase higher face amounts than with permanent life insurance for the same premium dollar amount.

Permanent Life

Permanent life insurance offers protection for the entire life of the policy holder, provided that premiums are paid that the insured does not cancel the policy. Although permanent insurance offers fixed premiums over the life of the policy, often these premiums start higher than a comparable term life policy with the same amount of death benefit. Part of the reason for this higher premium with permanent insurance is the cash value feature. While a portion of a permanent life insurance policy’s premium goes towards the insurance coverage, another portion goes into the cash value build up. And, although this cash value can increase over time, in order to get to the funds, the policy holder must either borrow his or her own money, or surrender the policy. There is often a surrender charge if the policy holder drops his or her policy within a certain number of years.

Most permanent life insurance policies come with high investment fees and commissions, and these fees can take away as much as three percent per year from the cash value build up portion of the policy. In addition, most permanent life insurance policies don’t start to build cash value until their 12th year. It is estimated that whole life insurance policies rarely ever yield a reasonable return unless held for 20 or more years. Since most people drop their life insurance policies within the first ten years, term seems to be the more economical, low cost life insurance choice.

Which Type of Life Insurance to Choose

People buy term life insurance for a specified time period, such as 5, 10, 20 or 30 years. During that time period, or term, the insured pays a specified set premium. There are some things to note, however, regarding the death benefit on a low cost term life insurance policy.

First, be aware that the death benefit amount may not remain the same throughout the term of the policy. For example, there are different policy options that offer a level, decreasing, or increasing insurance coverage amount. With a decreasing term policy, each year the amount of death benefit decreases. Therefore, if an insured has need for a constant death benefit amount, a decreasing term life policy would not be the best choice.

Second, since term insurance only covers an insured for a certain amount of time, the policy holder must be aware that once the policy term ends, he or she will need to requalify for coverage, often at higher rates and pending the policy holder’s current health status. If this will cause future hardship to the insured, he or she should consider a renewable or convertible term life insurance option. This way, the insured can still purchase a low cost term life insurance policy, and will be assured of coverage in the future by converting or renewing without taking another medical exam to qualify for coverage. The guaranteed conversion right varies by company. Some allow this benefit for only the first few years of the policy, while others allow the conversion up to a specific age of the insured, such as age 65 or 70.

Considering Return of Premium Term Life

A term life insurance policy may also have a return of premium feature. This plan is more expensive than a basic low cost term life insurance policy, however, it has the added feature that the policy holder will receive all of their premiums back if they do not die within the time period specified in the policy. This type of policy has been compared to renting a home versus buying one, with the insured receiving all of his or her rental payments back.

Low cost term life insurance is a great option for policy holders who need life insurance, but cannot afford the higher premiums associated with permanent life insurance. Term is ideal for young and healthy individuals who are on a budget, as well as those who need a simple life insurance death benefit to cover a temporary need.

Conclusion

Low cost term life insurance can also provide a way to protect a business. Used to fund a buy-sell agreement, the death benefit can ensure that a business sustains its operations and will not need to be sold upon the owner’s death.

In addition to its affordability, low cost term life insurance is easy to purchase. There are many online sources that offer quick quotes, based on how much coverage is needed and for how long.

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