Term Life Insurance For Seniors - The two oldest varieties of life insurance - term and whole life - are among the most popular types. Whole life is a form of permanent life insurance that lasts for your entire life (as long as you pay the premiums of the policy). It also accumulates cash value that you can withdraw or borrow depending on why you live. Term insurance, on the other hand, lasts only for a certain number of years (tenure) and does not earn any cash value.
In addition to whole life and period life, many other variations have emerged such as universal life (UL). Today, insurance companies offer more complex products to reach a wider range of customers.
Term Life Insurance For Seniors
But back to the basics, what is the difference between term and whole life, and which one is better for your needs? These two types of policies remain the most popular and easy to understand. We'll break down the main features that separate these insurance mainstays.
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Term life insurance is probably the easiest to understand because it is simple insurance, without the bells and whistles. The only reason you should buy a term policy is that your beneficiary is promised a death benefit if you die while it is in force.
As the name suggests, this stripped down form of insurance is good only for a fixed tenure, be it five years, 20 years or 30 years. After that, the policy simply lapses.
Because of these two features - simplicity and limited term - term policies are also the cheapest, often by a wide margin. If you are looking for the ability to protect your family only when you die with life insurance, then term insurance is probably best suited if you can afford it. Since term policies are generally more affordable and last until your child reaches adulthood, they can be an option for single parents who want an added safety net.
The average 30-year-old can get a 20-year term policy with a death benefit of $500,000 for $27.42 per month. Because of their typically long lifespan, the average 30-year-old woman can purchase a similar policy for just $21.74.
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A variety of factors will certainly change those prices. For example, a larger death benefit or longer duration of coverage will definitely increase the premium. Plus, most policies require a medical check-up, so any health complications can also raise your rates above the norm.
Because term insurance eventually expires, you may find that you haven't spent all that money for any purpose other than for peace of mind. You cannot even use your term insurance investments to build wealth or save taxes.
Whole life is a form of permanent life insurance, which differs from term insurance in two important ways. For one, it doesn't end as long as you continue to make your premium payments. It also provides some "cash value" in addition to the death benefit, which can be a source of money for future needs.
Most life policies are "level premium," which means you pay the same monthly rate for the term of the policy. These premiums are divided in two ways. A portion of your payment goes towards the insurance component, while the other portion helps to increase your cash value, which increases over time.
Term Life Insurance Explained
Many providers offer a guaranteed interest rate (often 1% to 2% annually), although some companies sell "participating" policies, which pay un-guaranteed dividends that can increase your total return.
Initially, the whole life premium amount is higher than the cost of the insurance itself. However, as you get older, this reverses, and for someone your age the cost comes down to a normal term policy. This is known as "front-loading" your policy.
At a later date, you can borrow or withdraw from your cash value amount, which grows on a tax-deferred basis, to pay for expenses such as your child's college tuition or repairs to your home. In this sense, it is a far more flexible financial instrument than a term policy. Borrowing from your policy is tax-free, although you must pay income tax on the investment gains of any withdrawals.
Unfortunately, the death benefit and cash value are not entirely separate functions. If you take a loan out of your policy, your death benefit will be reduced by a similar amount if you don't pay it off. For example, if you take out a loan of $50,000, your beneficiaries will receive $50,000 less, plus any interest owed if the loan defaults.
Never Surrender, Convertible Term Life Insurance And The Secondary Market
The main disadvantage of whole life insurance is that it is a bit more expensive than a term policy. On an average, permanent policies cost five to 15 times more as compared to term covers with the same death benefit. For many consumers, the relatively high cost makes it difficult to pay.
Another potential disadvantage of whole life insurance is its complexity. With a term policy, for example, you can stop making payments if you no longer need insurance or can no longer pay.
However, depending on your carrier, lifelong policyholders may face a surrender charge of up to 10% of the cash value if they decide to surrender their policy. Usually this charge diminishes as the years go by until it finally disappears.
So what type of coverage is best for your family? If you can afford only term cover, then the answer is simple - basic protection is better than no cover at all.
Why Suze Orman Recommends Term Life Insurance Over Whole Life
This question is a bit more difficult for those who can afford the higher premiums that come with a whole life policy. If your goal is to save for retirement, many fee-based (that is, non-commission-earning) financial advisors recommend turning to 401(k) and individual retirement accounts (IRAs) first. After maxing out those contributions, a cash value policy may be a better option for some people than a fully taxable investment account.
Some consumers have specific financial needs that a whole life policy can help them manage more effectively. For example, a parent of a disabled child may also want to consider whole life insurance because it lasts for the rest of your life. As long as you continue to pay premiums, you know that your children will receive the death benefit of your policy.
It can also be a valuable tool in small business succession planning. As part of a buy and sell agreement, business partners sometimes take out whole life insurance for each owner, so that the remaining partners can purchase the deceased's equity in the event of their demise.
Regardless of the type of insurance policy, premiums will be lower (and healthier) when you buy it.
Best Life Insurance For Seniors Over 70, 75 (no Exam, Term, Whole)
This is an age-old question in the life insurance business. The answer is that it depends on your needs and desires. If you only need life insurance for a relatively short period of time (such as only if you have minor children to raise), the term may be better because premiums are more affordable. If you need permanent coverage that lasts your entire life, maybe whole life is better. Whole life also provides a number of lifetime benefits derived from the accumulation of its cash value, which reduces the actual cost over time.
Life insurers or their agents receive commission from selling the policy. This is typically between 60%-100% of the first year's premium amount and a series of small residual payments (perhaps 2% to 10% of that year's premium) each year.
Typical term life policies come in terms of 10-, 15-, 20-, 25- or 30-years. A small number of insurers will also offer 35- and 40-year policies.
Whole life insurance certainly offers more financial flexibility with its cash value component. However, because permanent policies are more complex and expensive, many consumers adhere to the old principle, "buy the term and invest the rest."
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Term life insurance is simple. Commonly described as "pure insurance," term life insurance provides a lump-sum death benefit to your beneficiary if you die while the term policy is in effect.
Convert Term Life Into Permanent Life Insurance To Keep Your Rate
When senior citizens are considering buying term insurance, they should ensure that their premium payment remains the same throughout the tenure.
In most cases, buying term life insurance through a broker like Buy Life Insurance for Daphne, your term stays stable throughout the term of your term life insurance.
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