Term Life Insurance Prices Are Low Because Such Policies Have No Cash Value
Term insurance is mainly meant for people who want to buy an insurance policy by paying less. The rates of term life insurance are low and the premiums are nominal. But it is not a good option for people who want to invest for long term and is looking for savings and pension options. The term life insurance is a simple life insurance plan that will provide the cost of the funeral for the insured person, will look after the dependence care and his or her college education, any mortgage coverage if any, coverage for loans etc only if the insured person dies within the stipulated term of the policy.
The benefits of the term life insurance plan is that the beneficiaries get the death benefit as a lump sum amount after the death of the insured person. But the most important factor in this case is the term of the insurance policy. The beneficiaries can avail the death benefits under the circumstance that the insured person dies within the stipulated term of the policy. Yet many people prefer to invest in this plan because of its affordable term life insurance rates.
It is said that term life insurance rates are cheaper in comparison to the whole life or universal life insurance rates. Why do the carriers provide the coverage at such low rates? How can they afford to do so? The answer lies in the very fact that death benefits are paid only if the insured dies within the term and that it has no cash value.
The four basic factors that the insurance companies verify before insuring you are age, gender, tobacco use and health class. The age factor plays a role in the fact that the more your age is the costlier your term life insurance is going to be. As in gender it is assumed that women live longer than men and hence the rate for women is lower than that of men. Also tobacco smokers have to pay a higher rate compared to non smokers as smokers face more health hazards than non smokers. If you are suffering from any ailment or a chronic disease or have a family history of medical conditions then also you might have to pay higher rate for term life insurance.
The rates in term life insurance also varies depending upon the factors that are stated above. A smoker will have to pay higher rates compared to a non-smoker for buying the same policy. This actually depends upon the assessment of the insurance company as to whether the person who is willing to get insured will survive the term or not. In most cases the insured person survives the term of the policy and hence the company does not have to pay any death benefits in that case.
One more factor that reduces the term life insurance prices is the underwriting cost. As in term life insurance there is no cash value hence the underwriting cost is also very little. Another factor that impacts the price of the term life insurance is the body mass ratio. This implies that a slimmer person will have to pay less for life insurance compared to an obese person as slim and fit people have longer life span than obese people.
Deciding the coverage term could be the most crucial aspect of buying a term life insurance policy. If you decide it correctly then you may be able to bag the best deal in terms of rates. If you are buying the policy to mitigate some liability then you should be able to project as to how long your liabilities will continue and plan the term coverage according to it. If you are taking it for general life coverage then getting coverage for 65 years is not a bad bargain.
The coverage amount too has an impact on the term life insurance prices. Higher it is, higher is the premium rate. Therefore, it should be neither too low, nor too high. It is hard to calculate the amount of money your family will need in your absence in an unspecified future. Multiplying your annual income before tax by fifteen is one of the ways. Alternately, you can contact some good broker who can calculate the amount taking into account factors like inflation and interest rates.
Buy term life insurance if you are below forty. If you are on the wrong side of fifty, you should never think of it, because term life insurance prices under such circumstances are much too high. If you have crossed sixty, term life insurance rates become so high that it no longer becomes financially viable. If you still need life coverage you can try graded life insurance or buy term life insurance on yearly basis. Do not forget to add a compulsory renewable clause though. Otherwise, the carriers may refuse to insure you if they think you are no more insurable.
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