Most of the term life insurance policy are yearly basis and hence are very cheap. These are simplest form of insurance policies which are cheap and easy to avail. The benefit coverage under this policy is only for that year, which is if you die within the year you will avail the benefits. In this the case the probability of an insurer dying in such a short time is less and hence the insurance company provides these policies at such a low rates. But these low cost term life insurance are of no great benefits, they can be best suited if you are looking for temporary coverage.
You may also buy such low cost term life insurance to cover your long-term need, but in that case, you will have to face quite a few problems. Let us discuss them one by one.
• As discussed earlier these are annual insurance policy and in order to continue getting benefits under this policy you need to renew your policy very year. While renewing the policy if you become terminally ill then the possibility of your policy getting terminated is more. For that you can overcome this problem by adding a compulsory renewal clause at the very beginning. In such case you need provide the proof of insurability, but this will certainly increase the rates.
• Since these are yearly policy and needs to be renewed every year the insurance rates increase with age. Every time you go to renew you policy you will see a increase in the rates and down the line after ten years or so you will realize how much the insurance rates have increased. So the ever increasing policy price is another issue.
After looking at the problems faced by the policyholder in annual renewable term insurance you may come to a conclusion that this is not the right choice for long-term insurance need. So for people who are looking for long term insurance needs then the answer is ‘level term life insurance’ policies. These are cost term life insurance where the rates are based on sum of each year’s annual renewable term rates. Initially they seem to have higher rates but down the line they are affordable as the rates remain level through out the term duration.
The level term life insurance as discussed is the right type of long term policy, you can buy it for 5, 10, 15, 20 and 25 or 30 years based on you needs. The one basic problem is the policy price will increase with the duration of the policy. This is because the possibility of a person dying during the policy period is more. So it is very important to choose the right duration for the policy. Because choosing a policy for long time is not good at the same time short term policy will not meet your needs.
How do you find the right term duration? First, find out what you intend to cover with your term life. Because term life does not offer anything other than death benefit, its primary use is to provide the coverage of financial responsibilities of the insured. You can buy it to cover your mortgages, consumer debts, children’s higher education, dependent care etc. You can buy small policies to cover individual liabilities or one big coverage that includes all.
Let us take the issue of individual small coverage first. You should know before how long you can square up most of your liabilities except perhaps dependent care. Add few more years to cover any contingency. To decrease the price of the low cost term life insurance even further you can cover your mortgages and loans on decreasing term life insurance. Since the face value of such policies decrease as you keep paying off, the rates are even lower. However, that is another issue.
Most experts would advise you to stay covered until you are sixty-five if dependent’s care is your main issue or if you want to buy one big all-inclusive coverage. By that time, you should be able to pay up your debts and mortgages, your children should be self-sufficient and you should have made enough money to take care of any rainy day.
Before finalizing the exact term duration you must consider things like your children’s age, your retirement age, any long-standing financial obligation you may have into consideration. Also add few more years to cover any contingency. Life insurance policy cannot be standardized to need all needs. You must always keep in mind what is that best suits you and your family. So you must keep all these factors into consideration before buying low cost term life insurance.
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