We never truly know what the future has in store for us. The risk of the unknown can be especially daunting when we have loved ones who depend on us for support. Life insurance allows us to protect the financial future of our family and maintain peace of mind. Term life insurance is often the first foray people make toward protecting their finances for their loved ones should they suddenly pass away. It is an immensely popular insurance product due to its relatively low monthly cost compared to permanent life insurance. However, there is a catch. Term life insurance expires at the end of the term, leaving you uninsured. Fortunately, it is possible to convert your term life policy to a permanent life policy and it may be possible to finance the higher premiums with a loan from a 3rd party lender. Let’s discuss the benefits of term life insurance, permanent life insurance, and premium financing.
What is term life insurance and who should buy it?
Term life insurance protects the insured for a specific period of time. For example, a term life policy may offer $500,000 dollars of death benefit for a term of 5, 10, 15, or 20 years. This means that if the insured passes away before the end of the policy’s term, their beneficiaries would receive $500,000 dollars, tax-free.
Every month for the duration of the term, the insured pays the premium amount of the policy. This amount is determined by a number of factors including but not limited to:
- The age of the policyholder
- The amount of death benefit
- The health status of the policyholder
- The gender of the policyholder
For example, a 40-year-old female in good health who wants to purchase a 20-year policy with a $500,000 dollar death benefit might pay around $30 dollars/month for the duration of the 20-year term.
Term life is excellent for people who are looking for some peace of mind at a great value. It is important to note that the older a person is, the higher the monthly premium will be. Term life is an especially good value for younger people as the premiums are very low.
What happens when my term life is set to expire?
At the end of a term life policy, the insured has 3 options. They can either:
- Let the policy expire and do nothing about it.
- Purchase another term life policy.
- Convert their term policy to a permanent policy
Let’s take a look at each of these options.
Letting the policy expire
If a person lets the policy expire, then they will no longer be insured. This means that if they were to pass away, their beneficiaries would not receive any money. Term life is not a cash asset in the sense that the premiums are not innately recoverable. This is one of the reasons that term life insurance is less expensive than a permanent life policy.
Purchase another term life policy
If the insured opts to purchase another term life policy, the rates will likely be significantly higher as the insured is now older than they were when they purchased their first term policy. There is also the health risk associated with aging. The person may not be in the same health as they were when they purchased the original policy, which also would increase the cost of the insurance.
Convert their term policy to a permanent policy
This option allows the insured to remain insured by converting their term life policy to a permanent policy that follows them throughout the rest of their life. Permanent policies such as Whole Life Insurance or Indexed Life Insurance are very different from Term policies.
Permanent life insurance is an asset that can accumulate cash over time. There are many advantages of permanent life policies due to their nature as cash assets. Check out this article to understand the benefits of Whole and Indexed life insurance.
While premiums for permanent policies are higher than term life policies, the benefit is that you are not risking losing your monthly premiums due to term expiration. Additionally, there is the possibility for your premium dollars to grow at either a fixed return or an indexed return (which is mirrored by the index market such as the DOW, the S&P, and others). A person with a permanent policy can borrow against the cash accumulated within the policy and use the money for other life needs as they arise. While this flexibility comes at a higher monthly cost, some people may qualify for premium financing.
Premium financing as a tool to preserve liquidity
Premium financing is a process where the insured utilizes a 3rd party lender (such as a bank) to secure a loan in order to pay the premiums. If the insured qualifies for the loan the Lender will pay the insurance premiums. In return, the insured may pay the interest on the loan which is significantly less than the cost of the premium. This allows the insured to enjoy the benefits and protection of a substantial life insurance policy without sacrificing their liquidity in the process. To learn more details about premium financing, check out this article.
Protection for life
A term policy is an excellent place to begin your life insurance journey. With professional help from Insurative Risk Solutions U.S., Inc., you are able to roll your term policy into a policy that will last a lifetime. Premium financing is a creative way to secure the protection you need for your family while preserving your cash for other life needs. Let us know how we can help you take the next step toward securing your family’s financial future. Call us at 877-281-1311 or visit our website at insurativeus.com.