Whole vs. Term Life Insurance
Many people view life insurance as a necessary evil; just another monthly payment that will hopefully someday help provide for the insured’s family and cover funeral expenses. Death certainly isn’t a nice thing to think about, but it is important to understand two specific types of insurance policies and how they may benefit the insured’s family after death- or even the insured during their lifetime.
Term Life Insurance Premiums Truth
Term life insurance is the least expensive type of policy, at least as far as the monthly premium is concerned. How term life insurance works is often misunderstood.
Many people believe that the “term” applies to how long the policy will be in effect. In truth, though, the term refers to the number of years the policy is guaranteed at a specific monthly premium. For example, a man buys a 20-year term life insurance policy at age 32. In reading the fine print, he realizes the policy is actually valid until he is 100 years of age. However, after the 20-year term, the insurance company can (and most likely will) raise the monthly premium. How much it increases depends on the company, but the predetermined rate is usually buried somewhere in the policy’s fine print.
How Insurance Companies Make Money on Term Life Insurance Policies
The additional premiums may be so exorbitantly high that the insured has no choice but to let the policy lapse. In the example above, this would mean the man would have to either pay the new, higher premium, or qualify for a new policy at age 52.
Insurance companies collect the premium for the term of the policy, but don’t pay a death benefit unless the insured dies within the life of the term. If the policy lapses, all of the premiums paid into it are wasted. In order to qualify for a new policy, the insured will probably have to undergo a medical and will pay higher rates reflecting their age.
Cash Value of Whole Life Insurance Truth
Whole life insurance premiums are guaranteed for life. Monthly premiums are usually significantly higher than term life premiums. However, the rate will not increase later in life, the insured will not have to re-qualify at some point, and the policy builds cash value.
This is how the secondary life insurance market works: Investors pay for the right to assume the policy. They pay a cash settlement to the insured, in exchange for the right to collect the settlement on the insured’s death. It is a 100% fail-safe investment for the policy buyer, and the insured receives a large sum of cash to pay for retirement living expenses, special care, etc.
Choosing Between Two Types of Insurance Policies
While the benefits and drawbacks of each type of policy seem clear, deciding which policy to buy isn’t so simple. The decision must consider such factors as age, expendable income, children or other responsibilities, other investments, and overall health.
An insurance broker can be a great source of information when investigating different policies. However, a solid understanding of the basics is critical in ensuring insurance policy seekers end up with a policy that reflects their wants and needs, rather than one that provides a large commission for the selling agent.
How to Convert Insurance Policies
Converting term life to whole life insurance is a good idea for most situations. It is like converting the rewards of 777 casino into insurance policies. Term life insurance is less expensive. It is usually bought when the insurance policyholder is not able to afford whole life insurance but needs to cover mortgages or final expenses.
Though more expensive than term life, whole life insurance does offer families policy loans and cash value accumulations. If policyholders can manage to pay the higher insurance premiums associated with it, switching to whole life insurance can be a good investment.
Find Out if One’s Term Life Insurance is Convertible
The first step in converting term to whole insurance is to discover whether it is even possible to do so. Reading a family’s insurance policy can help determine this. Another option is to contact a term life insurance agent for assistance when interpreting policy literature. If a term policy is not convertible, but is renewable, it is possible to renew but not convert insurance policies.
Inform an Insurance Agent
If conversion is possible, inform an insurance agent about the intention to do so. Check with this agent to find out about available whole life insurance policies, as well as if the agent can offer the specific policy a policyholder is interested in.
Weigh the Options When Converting to Whole Life Insurance
Invest in a whole insurance policy that offers flexibility in changing the policy protection length, face amount and premiums. Choose modified whole insurance for lower than usual premiums in the first couple years that can be made up for with higher premium rates afterward, when a positive financial situation shift is expected.
Select a limited-pay whole policy if interested in paying premiums for between 10 to 20 years and then having the policy be valid and paid for afterward. Choose joint life and survivorship or joint life insurance policy if a spouse is also in need of insurance.
Meet With an Insurance Agent
Schedule a time to meet with an insurance agent. Review the family’s current policy very carefully when together, as well as the newly available whole life insurance policy options.
Meet With Insurance Policy Beneficiaries
Meet children or other intended beneficiaries to involve them in discussions about which insurance premium to ultimately invest in. Include beneficiaries in meetings with the insurance agent. Involve them in deciding how insurance payouts will be made.
Provide the Insurance Agent Another Premium
The last step in converting term to whole life insurance is to provide the insurance agent with another premium. Do this only if necessary (depending on the value of conversion assigned to a policyholder’s previous term life policy and the price of the chosen whole insurance policy).
Converting term to whole life insurance is generally a good idea. Make sure to review all the options involved thoroughly with an insurance agent and beneficiaries to make the best conversion decisions.