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Life Insurance: Types Of Available Policies

Term Insurance

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Term life insurance is old fashioned, pure, life insurance. There are no additional features to a term life insurance policy so every penny of the premium you pay goes to purchasing life insurance.

Term life insurance is issued for a specific period of time. The period of time (also known as the "term"), may be as short as 1 year, or may be issued for longer periods such as 5, 10, or 20 years.

The premiums for a term life insurance policy are usually guaranteed for a certain period of time, though not always for the full length of the "term".

The various types of term insurance include:

Renewable Term

Like any term life insurance policy, a renewable term life insurance policy is written for a specific period of time. The owner is given the right to continue ("renew") the coverage beyond the end of the original term. For example, if you purchase a five year renewable term policy: at the end of a five yea period, you have the option to continue the life insurance for another five years.

The right to renew is usually guaranteed unconditionally. This means that you will not be required to show that you are medically insurable at the time of renewal. Thanks to this feature, any health condition that showed up since the policy was issued is not relevant.

A renewable term policy either renews at the same premium as paid during the original five year term or at the company's then current rates. The rates will not take into account changes in your health since the issuance of the policy.

Convertible Term

A convertible term life insurance policy is one which includes the option to convert to a permanent type of insurance policy at the end of the term. With a permanent life insurance policy, as long as you pay the premium, the policy remains in effect. For example, if you purchase a five year convertible term policy, you will have the right at the end of the five years to convert the insurance to a permanent policy issued by the insurance company.

Premiums generally increase when a term policy is converted into a permanent life insurance policy.

If the right to convert is exercised during the time indicated in the plan, you will not have to provide any medical information to obtain the permanent coverage.

Level Term

A level term life insurance policy is one in which the face amount (the death benefit) benefit remains the same during the duration of the term, no matter how long the terms is.

Decreasing Term

A decreasing term life insurance policy is one in which the death benefit decreases at specified times during the duration of the term. For example, you purchase a $100,000 decreasing term policy for a ten year term. When the policy is issued, your beneficiaries would receive $100,000 if you died right away. However, the amount of the death benefit decreases over the period of time. By the end of the ten year term, the amount of your insurance will have been continuously reduced and may, for example, only provide a death benefit of $10,000.

Premiums for decreasing term life insurance policies remain the same over the duration of the term even though the amount of insurance decreases.

Decreasing term life insurance policies are useful when the need for which the insurance is purchased decreases over time. For instance, decreasing term policies are often issued to track decreases in mortgage debts.

Adjustable Premium

An adjustable premium life insurance policy is one in which the amount of the premium can change ("adjust") over the course of the term. The premium could go up or down.

The permitted change follows a formula based on calculations that are defined in the policy.

It is possible to reduce the amount of insurance (and thus the amount of the premiums) if at some point the premiums increase to a level that you cannot afford.


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