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Variable life insurance is sometimes called variable appreciable life insurance and it offers permanent protection to your beneficiary if you happen to die while insured. The term “variable” refers to your ability to choose where to invest a portion of your premium dollars in a separate account. The insurance company will have an investment portfolio consisting of different investment funds. You can decide whether to place your money in a money market fund, bond fund, equity fund or combination of any of these funds. This means that the value of your death benefit and the cash value of your insurance policy will vary according to the performance of the policy’s investment portion.
Most variable life insurance policies establish a guaranteed minimum so you don’t have to worry about your death benefit dropping to below a certain amount. This is not the case with the minimum cash value of the policy. Because of the investment risks involved with variable life insurance, it is regulated as a securities contract and is bound by the Federal Securities Laws.
One advantage of variable life insurance is that you can choose to invest in several different funds without being taxed on your earnings until the time of surrender. You can also lower the amount of money you have to pay by applying any interest earned toward your premiums. On the other hand, you assume a certain degree of risk when choosing this type of life insurance. Poorly performing investment funds can result in less money to pay premiums and lower cash and death benefits.
What Is It
Term life insurance, also referred to as term assurance or “pure” life insurance offers you temporary protection for a certain period of time. It differs from permanent life insurance because it does not enable you to build up cash value. This type of insurance is also flexible so you can adjust your policy to suit your changing needs. With term life insurance, you are provided temporary coverage for a set period of time or term such as five or 10 years. At the end of the term, you can decide whether you prefer to cancel your policy or continue paying premiums. The premiums will increase every year if you wish to continue your coverage. You can designate a beneficiary who will receive the death benefit if you die during the term of your term life policy.
You can choose from a term insurance policy that will provide coverage for only one person. Another option is to purchase a joint term insurance policy. This will provide coverage for 2 people who share a joint risk such as a mortgage or loan under one policy. The cost of your term life insurance policy will be calculated based on documents called actuarial, life or mortality tables. The amount of your premiums reflects the chances that you will die within a specified time period indicated in your policy.
Who Is It Best For
Because term life insurance is designed to provide temporary coverage, many people use it to cover expenses such as funeral costs, consumer debt, tuition fees or even mortgages. Term life insurance is a popular choice for business owners who require coverage for buy/sell agreements or key person protection, as well as small business owners who have large start-up costs or debts. Many young, growing families also prefer this type of insurance because they have high financial needs with lower available resources. If you’re mainly concerned with flexibility and affordability, term life insurance is a very suitable option.
Advantages
Lower Premiums
One of the main advantages of term life insurance is the lower premiums. Because the policy will not build up cash value, you end up paying much less. The only thing you must pay for is the cost of insurance or C.O.I. This is the amount of money your insurance company will charge you to maintain your life insurance policy. The actual amount will vary according to the condition of your health and your age when you first apply for coverage.
Higher Coverage
For the price, you can obtain significantly more coverage if you choose to purchase term life insurance. This means you can rest assured your family will be well provided for in the case of your accidental or untimely death. Term life insurance is usually the least costly option to purchase a large death benefit.
Flexibility
Another advantage to purchasing term life insurance is the flexibility. You can always lower your policy or even cancel it at any time. This is often not the case with many other types of insurance coverage. If you face major changes in your life such as an accident, unexpected move or loss of your job, you can lower your coverage so you can afford to pay the premium and continue coverage.
Disadvantages
No Cash Value
Term life insurance also has some disadvantages. For example, you won’t be able to share in returns from your insurance company’s investment portfolio if you purchase this type of insurance. This means you won’t receive any cash value for your policy, unlike other types of insurance. A term life insurance policy offers no savings component so your premium goes only towards the death benefit. This also means you won’t be able to borrow money from the policy if you require emergency funds. You can’t take money from a term life insurance policy to pay premiums if you ever find yourself in trouble financially.
Increasing Premiums
Another issue is that you will pay much higher premiums as you get older. This is due to the fact that the cost of term insurance is directly linked to the probability that you will die. Consequently, continuing term life insurance when you are over 65 may be impossible because of the high premiums involved. You may have to discontinue the policy at the end of the term which will leave you and your family unprotected. Although you will pay less than permanent life insurance to take out a term life insurance policy when you are young, you normally pay much more to renew this type of policy when you are older.
Renewal Problems Due to Health Issues
If you purchase an original term life policy that is not guaranteed renewable, you could run into problems when the term expires; some individuals end up developing major health problems later on in life. This may prevent them from qualifying for coverage when they wish to renew their term policy. The coverage may also become too expensive to renew if you are suffering from a serious health condition. You may be surprised at how much your health will affect the price of insurance; you may end up paying 30 percent more for premiums if you are only 10 pounds overweight when you want to renew your policy!
Provides Only Temporary Coverage
Last but not least, your coverage for term life insurance will end as soon as the set time period ends. This means that the amount of money insured will only be paid out if you die during the specified time period in which the policy remains in effect. Just imagine what would happen if you purchased term life insurance and then unexpectedly find yourself a single parent in your forties trying to support a family. Your term life policy may expire just when you need coverage the most.
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