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What is Term Life Insurance?
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Term life insurance is very popular because of its low cost and relatively long term of coverage. These policies provide a low cost way to get maximum insurance protection for a set period of time at a fixed cost. The premium rate you pay for term insurance is guaranteed to remain the same low amount for the duration of the term of coverage selected. Many insurance companies offer term insurance policies for periods of from 5-30 years.
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Is there Cash Value in Term Life Insurance?
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No. Term insurance policies build no cash value. They pay a benefit only if you die during the term of the policy coverage. If death occurs, the beneficiary collects the face amount (the death benefit) of the policy income-tax free.
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Will my Premium Increase on Term Life Insurance?
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Depending on the policy you choose, the premium rates remain the same through the contract of the term. If you renew the policy it will normally increase at the end of the guaranteed policy period. Term insurance policies require that you furnish evidence of insurability at renewal to qualify for the new rates.
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When is Term Life Insurance the Right Choice?
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If low dollar outlay is your main concern, and your insurance need is for a period of 30 years or less, term life may have an advantage. If your need for coverage will last beyond 30 years, a Universal Life or whole Life policy may be more effective. Should your life insurance needs change, many term policies carry a conversion privilege that will allow you to convert your term coverage to permanent Universal life or a Whole life policy without a medical examination. It is important to check the conversion privileges of the term policy before you make your purchase.
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What are the disadvantages of Term Life Insurance?
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On most policies the premium may increase after the guarantee period expires. Coverage may also terminate at the end of the policy term or may become too expensive to continue. Generally, the policy does not offer cash value.
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What are the advantages of Term Life Insurance?
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Premiums are generally lower than those for permanent insurance, and you can afford higher coverage when the need for protection is greatest. It is also good for covering specific needs that will disappear in time, such as mortgages or family income needs for children. Term life insurance is an effective way to get the most coverage at the lowest cost for up to 30 years.
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What is Whole Life Insurance?
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Whole life insurance policies provide lifelong protection, not just for a specific period like term life. Whole life insurance covers you for as long as you live and continue to make timely premium payments. Most Whole Life Insurance policies have a feature known as "cash value" or "cash surrender value". This feature is not found in Term Life policies. Whole life insurance builds cash value, which is a return on a portion of your premiums that the life insurance company invests. Your cash value is tax-deferred until you withdraw it. You can also borrow against your cash value as well.
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What other names are used to define Whole Life Insurance?
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Whole life insurance is known by a variety of names including Permanent Life Insurance, Ordinary Life Insurance, Standard Life Insurance, Universal Life Insurance, Adjustable Life Insurance, Variable Life Insurance, Second to Die Life Insurance and Survivor Life Insurance.
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What are the disadvantages of Whole Life Insurance?
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Required premium levels may make it hard to buy enough protection and premiums are generally higher than those for term life insurance. The coverage may cost more during the early years of coverage when the need for protection is often greatest.
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What are the advantages of Whole Life Insurance?
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The policy’s cash value can be converted to cash or an annuity and a provision or "rider" can usually be added to a policy that give you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.
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