Are you an adult with kids, a spouse, or and financial liabilities? Then you should consider buying a life insurance policy. We know that life insurance is not top of mind for the younger people. However, getting your motorcycle license, buying a house, earning a high salary and starting a family are all good reasons to consider buying life insurance in your 20s or 30s.
What is term insurance? Contrary to what you might have heard, term life insurance is by far the least pricey type of life insurance policy to pay annually. This makes it very appealing to people, but if you exceed the term of the term policy, it means you won’t receive and death benefit. When the insured person dies during the covered length of the term, the beneficiaries will obtain the whole death benefit.
Term life insurance has little use as an investment as it has no cash value. Typically, life insurance businesses statistically expect their policy owners to outlive any term coverage.
Term insurance plans were introduced with a very simple structure – It only provided a sum assured upon the death of the policyholder, will provide coverage until 65 years and premium can be paid in only the annual course. But if you’ve already decided upon term life insurance policy, this article will prove useful to you.
There’s no pay-out when a policy term life insurance ends
What happens when the term life insurance policy ends? Nothing. Unless you choose to renew it at a higher price, and there is no pay-out. As we have previously mentioned, a pay-out only comes if the person insured dies while the policy is still available.
But that’s one of the reasons why people rely on a term insurance policy. It’s more affordable than other life insurance types out there.
With term life insurance policy, you’re less likely to have the option to renew the term, however, your rates will no longer be on hold, and you’ll pay more each year you decide to renew after the level term period has ended. Also, if you are still quite healthy and young, a new policy might prove way better.
You can’t cash out a term life insurance policy
It’s well known, and nobody can’t deny that financial and family situations can change over time, including during the course of a term life insurance plan. If you decide that you no longer need or want the insurance plan, there is no way to cash it out as the plan does not contain a cash value.
If you’ve heard of cash value life insurance such as the universal or the whole life insurance – it might be worth knowing that these policies types put a fraction of your premium expenses into a cash value within the policy. So in case you want to end up a cash value policy, you’re free to terminate the policy with the company and receive the cash value, minus the costs for surrendering.
With that in mind, since there is no cash value account in a term policy, interrupting the payments and walking away means the policy will end up without any refund, and you’ll miss the coverage.
The insurer has to pay whoever is named as the beneficiary
Both the insurance company and you, as the insurer, must stick to the contract. And the insurer’s biggest obligations are to make pay-out only to those you name as your beneficiary. In this case, it can be anybody from your spouse, brother in law, sister, mother etc.
If your family or financial circumstances have changed over the years, it is in your duty to call and inform your insurer. For instance, you may have originally named your husband as the beneficiary, but if you divorced and remarried, you might want your new spouse to benefit from the pay-out.
Bear in mind that this decision is yours to take and not the insurer. You get to decide who should obtain the benefit, or who deserves the pay-out.
The insurer must pay only the person or persons listed by you. If you’ve made your mind and decided to dispute a beneficiary, that might require a court process with great chances to lose the battle. For this reason, experts advise those new insurers to keep their beneficiary list up to date to avoid a court process.
Children shouldn’t be named as beneficiaries
This might seem weird, as one of the many reasons why people purchase life insurance is to support their children when they’re no longer around.
But one thing people often overlook is that their children won’t receive the pay-out directly – for pay-out to be available, the minor children listed as the beneficiary has to be accompanied by a guardian who can look for the money until the children reach the right age, which also varies by country.
Experts advise you to avoid such decisions unless you want the court fees to eat a lot of your funds. Instead, you can sign a trust with a person you can rely on and can receive the fund and use the income according to your needs and wishes.
You can shift your term life insurance policy into a permanent policy
A great advantage that comes with a term life insurance policy is that you can escape to another policy plan. Term life insurance policy usually comes with a conversion feature, which allows you to switch to a permanent life insurance plan at the exact same company.
As we’ve previously discussed, both family and financial situations are likely to change during the term life insurance policy. This can be one of the reasons why you may need to change your insurance plans. For instance, you may have developed a new health condition that would make your new insurance exorbitant. In this case, you may use the conversion feature and sign for permanent policy for the rest of your life without answering or filling out medical questions.
