There are two main types of life insurance generally. The Temporary life insurance is called Term Life insurance and a permanent life insurance. Permanent Life insurance has 3 more types: Universal life, Whole life and Variable life insurance policies.
Another name for temporary life insurance is a Term Life insurance policy. It can range from 10 years to 30 years mostly. The benefits are its affordability and its fixed premiums every month. The term life is specifically made for people on budget.
It offers 10-15 times cheaper premiums compared to whole, universal or variable life insurance policies. It also pays out a huge death benefit payout at the end if the policyholder dies within his term. If, however, he outlives his term life policy, he no longer stays insured.
- What happens when my temporary life insurance runs out?
- What are the different models for temporary life insurance?
What happens when my temporary life insurance runs out?
He receives no death benefit then, but this is only for the Term Life policies. At this point in time, when his term life expires, he can choose any of the four available options.
- Either he can renew his term life policy and pay higher premiums than before
- Or he can sell his term life policy by life settlement a month before the expiry date passes
- Or he can convert his term life to a permanent life policy
- Or if he is healthy and has good life expectancy, he can buy a new term life policy
What are the different models for temporary life insurance?
There are many different types of term life insurance which are aka temporary life insurance models:
Level Term Insurance
This is the most popular type of term life insurance used throughout the US. It offers somewhat fixed monthly premiums for the whole term whether 10 years or 40 years. This enables the policyholder to sum up a considerable amount of lump-sum cash for his death benefit payout.
This is paid to his beneficiaries after his death. If he dies within his term. Once a policyholder signs up for this Level Term Insurance, his premiums and death benefit payout stays the same even if his health declines later on!
Decreasing Term Insurance
As the name implies, it means the type of Term life insurance policy, in which the death benefit payout keeps decreasing with the passage of time. Obviously, a policyholder can use the decreasing term insurance for paying small mortgage loans or other credit cards debts. This can be used to cover the expenses which decrease with time, if you keep paying them off in episodes.
Renewable Term Insurance
This type or model of Term Life Insurance allows its owner to renew his term life after some time. He can renew it without again providing evidence of insurability, with the previous life insurance company. He can renew his contract every time after it finishes, but for becoming eligible, he must keep up the monthly premium payments, over the years.
Convertible Term Insurance
This is the term life insurance model which allows the policyholder to convert part of or all of his term life policy, into any form of permanent life insurance policy. He can choose a good coverage value whole life per se, and keep up the monthly premiums. Monthly premiums are very high for permanent life policies. The convertible term insurance allows him to buy a cash value policy. The cash value gets accumulated till the end of policyholders’ life. He can also borrow a life insurance loan from it, if he is faced with any huge emergency, once during his lifetime too.
Return of Premium Term Insurance
This is a model of Term Life Insurance which is very expensive compared to all the others. It is so due to the nature of this policy, as per this, the policyholder gets a full refund of the monthly premiums. Simply put! The policyholder is entitled to full or partial refunding of all the premiums made till he cancels the policy. He also gets to keep the profit due to the interest rate 3%-10% accrued on the premiums from the time he bought that ROP term insurance policy.
Term life insurance policy suits people who need smaller coverage for a certain time span. The time period is 10 to 40 years for most life insurance companies. During this time, the policyholder keeps on making somewhat fixed monthly premiums. A small part of this premium goes for covering costs of the life insurance agency, and a major portion goes to the death benefit payout. The payout can be as much as $500,000 for 30 years’ term life.
If a $500,000 coverage permanent life policy was bought by the same policyholder, he would have paid almost double the premiums all his life, till death. The death benefit would be $500,000 but the premiums are higher due to the cash value component which accrues the lump-sum tax-deferred cash from the premium paid. Premium goes 3 ways: death benefit, cash value, insurance company costs. The good part is that the policyholder for a permanent policy can borrow a life insurance loan against that cash value for some emergency.