Life insurance is a reliable way to ensure that your family is taken care of in case something happens to you. It basically is a contract with an insurance company which guarantees to provide an assured payment, known as death benefit to your beneficiary in the event of your death in exchange of a monthly (or yearly) premium. There are several types of life insurances available in the market today, but the most popular are the permanent life insurance (also called whole life insurance) and term life insurance. While permanent life insurance provides a lifetime of coverage, term life insurance is usually for a particular predefined period of time. You need to ascertain which one suits to your need in the long term. Do note that the death benefit from life insurance is usually exempted from income tax. Term life insurance provides you with the financial protection for a limited period, say fifteen or twenty years. Premiums are level and guaranteed for this entire duration. However, after this time, the insurance company may offer to continue the policy, but at substantially higher rate of premium. However, in comparison to a whole life insurance, this is a much less costly option.

 

Getting a term life insurance ensures that the potential loss of income (on your death) is adequately replaced. This provides a safety cushion for your next of kin and helps to keep the financial goals of the family in track – like paying off medical expense or mortgage, paying for your child’s education or help to fund a family business. Do keep in mind that the life insurance benefit is a one-time payment and does not come at regular intervals. When you go to buy a life insurance, you usually look to cover the years when your family would be dependent on you. A very common phenomenon is to purchase insurance just before some important milestones of your life – like having children or getting married, that is, when you are in your twenties, thirties or forties. Buying a term life is the best option in such cases because you get to select the duration – for example, you might choose a period of your working life or for the period of mortgage payment on your house. At the age of seventy or eighty, people do not usually have a need to acquire a term life insurance. But of course, there can be a number of cases where getting a term policy could still be a viable option when you are fifty, sixty or even beyond, especially if you have a young dependant. Age cutoffs vary from company to company, and of course on term length and the type of policy, but the common age bars for the schemes available in the market are:

  • Age 55 for a 30 or 25 year term
  • Age 70 for a 20-year term
  • Age 75 for a 15-year term
  • Age 80 for a 10-year term

 

So, what do you do when your term life insurance comes to an end? Do you still require the protection of a life insurance? There are some situations in which you would, for example:

  • If you have to pay the mortgage on your house
  • If you have any other major debts
  • If you have your children or your spouse entirely dependent on your income
  • If you decide to leave money for your next of kin through the insurance

If that be the case, there are a few options that you can consider. Another term life insurance policy: This is the most viable option if you are reasonably healthy and still have obligations like mortgage payments or dependents. Your premium rates ought to be higher than your previous policy because of your age, but then, you might just consider getting one for a shorter span of time – say tem or fifteen years. This is bound to make it cost effective. You can look around for a better policy from another insurer. There are a number of them available in the market and each of them periodically revises their plans and policies. So make time for some thorough research before putting down your money with your old insurer. You never know how much money you can potentially save. However, do keep in mind that would have to answer a number of health related question and undergo certain medical examination for during the application process to ascertain your physical well-being. Renew it annually: If you are not comfortable with buying a policy for ten years, it is always a viable option to renew your term insurance annually. This gives you the option of taking stock of your financial standing and deciding whether or not to continue with the insurance after a year. This might be a choice if you anticipate only a couple of years of financial obligations. The only drawback is that the premium tends to creep up every time you renew, and it actually becomes a liability of sorts if you continue it for a longer span of time. Conversion to Permanent Life insurance: This can be an alternative if you have a secure financial standing and can afford to pay the premium. It would give you the freedom from renewal of life insurance forever. However, conversion from a current term insurance to a permanent insurance may result in lowering of death benefit, so make sure you clear your doubts before you take this step. Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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