Wednesday, April 25, 2007

Term Insurance: Can You Afford Not to Have It?

Term Insurance: Can You Afford Not to Have It? by David McEvoy

Losing a family member can create both emotional and financial hardship on the entire family - whereas having a secure life insurance plan can help mitigate the costs involved. This is a benefit with both short and long-term plans. As you plan for your future, learning about the value and extensive benefits of your life insurance policies can help you maximize your investment.

Term life insurance can help your family with any costs in the event that you pass away, and can help minimize the risks involved with financial hardship on loved ones. When a key family member passes, their employment benefits cease to exist. Although some employers extend special insurance coverage to the employee's immediate family, this may not be enough to cover long-term needs and expenses.

Term insurance is commonly known as a ‘pure' form of life insurance because it only covers the insured for a specific period of time. The insurance policies will expire after a certain date, making sure that the policy holder's family and immediate beneficiaries are covered completely. It can help to protect a family's financial standing, or make money immediately available for children's college education or living expenses.

Determining Term Insurance Coverage

If you invest in a term insurance plan, you'll need to consider the length and type of the policy you want to invest in. The insurance policy is a legal document, and each type of insurance will vary by state or country. Term insurance is an affordable way to cover any potential risks in your future years; if you have numerous dependents, you really cannot afford not to have it. The best coverage for your family will depend on how many assets you own; if these are not valuable enough to provide cash after a sale, your family can be at a severe financial risk. Another factor to consider is whether you require a death benefit for a business. Any outlying businesses will require some form of coverage in the event that you are no longer the owner. Ultimately, term insurance is designed for complete financial protection in the event that you pass away.

Annual Renewable and Level Term Insurance

The beneficiaries of your insurance proceeds will receive the funds free of federal and state income taxes. The money can be used for any expenses, costs, and even pay off some debts such as a mortgage or outstanding revolving accounts. Term insurance can be renewed each year, while other premium policies can be extended for a specific period of time. Annual renewable term policies are ideal for short-term needs and the premiums will fluctuate each year upon renewal. However, this may become unaffordable if it is started too early. A level premium term life insurance plan may be a better option, since this will cover the insured for a set of years: 10, 15, or 20 years at a time will be covered at a set rate so there will not be any fluctuations in payments. Renewals may require an evidence of insurability, but you will have a chance to take advantage of more favorable rates.

Key Benefits of Term Insurance

A number of benefits exist for term insurance policies, and finding an affordable plan can help minimize the costs involved with alternative options such as permanent life insurance. Key benefits of term insurance include:

• Beneficiaries are paid the face value of the policy when the insured dies during the term

• Term insurance generally costs less than permanent life insurance plans and policies, making it more affordable in the long-term

• Some policies are renewable and may even be converted to a permanent insurance status

• A level term life insurance policy can last up to 30 years

• A higher cash value after proceeds are distributed to beneficiaries

Death benefits are not paid at the end of the term, so establishing the right amount of the policy is important during the selection process. Term insurance is the simplest and easiest type of insurance available. Most have a renewable feature that will allow you to increase the premium if any health concerns or life changes occur, and locking in a secure rates becomes much easier. Qualifying for various policies can be challenging, but once the medical evaluation is completed, the physical examination will easily approve a certificate of insurability.

What Term Insurance Proceeds May Be Used For

Once the insured has passed away and the beneficiaries receive the proceeds, term insurance can be used for a variety of purposes that can maintain your family's financial health and protect them from hardship. Common uses for proceeds may include:

• Paying off a mortgage

• Setting up a retirement fund for a spouse

• Covering children's school and college expenses

• Paying off debts such as credit cards or auto loans

• Purchasing stocks for long-term investments

• Covering business expenses

• Cover health costs of immediate family members

• Pay for personal expenses

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