Level Term Life
Level term life insurance is a term insurance which covers death of the insured. It is the simplest form of life insurance available in the market. It is not a cash or investment policy. It is low cost temporary insurance for people within the limits of a budget. The cost difference between level term life insurance and permanent life insurance is nearly 40 percent. The premiums paid are very low and it is the same amount for each year during the period of insurance. If death occurs during the period of insurance then the family and dependants of the insured are compensated by replacing the income you earned. Unlike permanent insurance which accrues cash value over time and offers life time insurance, level term life insurance does not accrue any cash value and coverage is for a specific period. It is affordable and it has guaranteed death benefit and protects you family in case tragedy strikes at very low costs.
Important Information About Level Term Life Insurance
Level term life insurance is more common than annual renewable term insurance. In this case the premium is the same for the given period and does not vary year to year unlike annual renewable life term insurance. The period of term plan is usually between 5- 30 years. The premium paid is based on the aggregate cost of each year’s premium. This takes into account the time value of money. So the premiums in the first year are usually lower than that of the later years. But it is averaged out and the same premium is collected each year, so the longer the period of insurance the higher the premium. For example a 10 year plan will have fewer premiums than a 30 year plan. As the age rises the chances of dying are higher. Level term life insurance programs usually include an option for renewal at the end of the maturity period and allow the policy holder to renew and extend the period of insurance at the maximum guaranteed rate. This is done in cases where the insured develops health problems during the term of insurance.
Why Level Term Insurance Is Highly Affordable?
It is mainly because the payout in case of term life insurance is only one percent. Why the low payout? It is because the chances of a young and healthy person dying during the term are remote. So the premium is based on the probability of the person dying and a small profit percentage for the insurance company. In case of occurrence of death of the policy holder during the running of the term of the policy a lump sum amount is paid to the beneficiary (family, dependants). The amount of money to be paid as compensation is specified at the time when the policy starts and remains the same throughout the period of the policy. While choosing the policy the term of the policy and the insured amount must be specified. Since the initial premiums are very low they can be purchased as extra cover to meet specific goals such as to repay a loan or make it as an extra protection when raising children. Level term life insurance is important protection for people who have spouses and children or other dependants who will suffer a financial loss in case of death of the policy holder.
The Features Of A Level Term Life Insurance
1. Initial InvestmentThe initial investment is very low for level term life insurance policy. So it is affordable to every section of the population. It does not make a big hole in the pocket and it is for people living within budget limits.
2. Adjustable Premiums
The next feature is the adjustable premiums. The premiums are based on the cover you require. The higher the cover or sum assured the higher the premium. Premiums may be raised or lowered according to the following factors changes in investments and expenses, changes in earnings, fitness and health. However in any case the premium will not be above the maximum limits mentioned in the cover.
3. Renewability
Renewability is an option offered to people with level term life insurance policies. Once the term ends the policy holder has an option to renew it. For example a person holding a 5 year policy can renew it for another five years if he/she chooses it. The premium increases on renewal since the age of the person has increased.
4. Convertibility
The last feature is the convertibility feature. After a specific term is over these policies are convertible in to permanent life insurance policies. The policy can exercise this option during the renewal time.
Riders In Level Term Life Insurance
There are additional benefits called riders available with a small increase in the premium paid of the level term life insurance policy. These riders give a guarantee in case some tragedy strikes.
First Benefit Is The Return Of Premium Rider
The return of premium rider gives additional cash benefits in your level term insurance policy. It begins in the sixth year of the 30 year level term life insurance policy. For the sixth year the cash accumulates and grows and by the time the year thirty is reached the cash accumulated becomes equal to the premiums paid by the policy holder. This gives an extra flexibility to deal with finance in your later years of life. Term an extra premium should be paid for these add on riders.
Accelerated Benefit Rider
This rider is included in the level term life insurance policy without any additional cost. This extra cover can be got at all ages and all amounts of insured sum. Here the advance is issued by the insurance provider. The minimum amount is $5000 and maximum is $250000 or 60% of sum assured which ever is lower. The policy holder should be the beneficiary. For getting these advances a medical certificate of fatal illness should be provided. The policy holder is expected to live for less than 12 months. In this rider option there is no extra premium to be paid by the insured but the policy must be active. It should not have expired. And all premiums till date must have been paid.
The advances made to the policy holder will be recorded as a loan and it is secured by the policy. The first lien is offered to the insurance company. On death of the policy holder this amount is adjusted from the sum assured. Both principal and interest charges at the rate of 8% are adjusted by the insurance company. Interest is payable in advance and if not paid will be added to the principal amount and the amount due.
Waiver of Premium (Unemployment) Rider
In case you are unemployed during the term period and you are collecting unemployment benefits from the government, then the premium will be waived for the original policy and any extra riders for a period of up to six months. This benefit is available only when riders are in force unemployment benefits are collected by the insured. An additional premium is required to be aid to purchase this unemployment rider.
Waiver Of Premium Disability Benefit Rider
In this case all premiums are waived since the insured becomes an invalid.