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A term life insurance policy is a cost-effective option, different from traditional whole life insurance.
Proudly providing term insurance services to California, Nevada, Arizona, Colorado, Idaho, Hawaii and Florida.
Term life insurance is exactly as the name implies – a life insurance policy that provides death protection for a stated time period, or term. Term life can be constructed for varying lengths–both short and long term. One of the reasons term life is so popular is that it can be purchased in large amounts for a relatively small initial premium. The typical period lengths for term life insurance include 5, 10, 20, and 30 years, while some insurers offer an even broader selection of terms.
Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Term life insurance is the original form of life insurance and can be contrasted to permanent life insurance such as whole life, universal life, and variable universal life, which guarantee coverage at fixed premiums for the lifetime of the covered individual. Term insurance is not generally used for estate planning needs or charitable giving strategies but for pure income replacement needs for an individual. Many permanent life insurance products also build a predetermined cash value over the life of the contract, available for later withdrawal by the client under specific conditions. However, on most cash value policies like Whole Life insurance, the only way to receive the cash value is to cash out the policy. The beneficiaries receive the face value of the insurance but NEVER the cash value with Whole Life policies. Financial advisers generally advise buying term life insurance and investing the difference elsewhere to those who still qualify to contribute to other tax-deferred investment growth such as IRA’s or 401k’s.
Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed. As an example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against the home if it is damaged or destroyed by, for example, a fire. Whether or not these events will occur is uncertain, and if the policy holder discontinues coverage because he has sold the insured car or home the insurance company will not refund the premium.
Term life is different from traditional whole life insurance in several ways. These features of term life make it attractive to those with short-range life insurance goals to consider. Here are a few characteristics of term life that you should know before buying:
• Convertibility. Policies are convertible from term policy to permanent policy types up to age 75 in most states.
• Renewability. The policyholder can continue coverage past the original coverage period of the policy with a premium increase.
• Accelerated Death Benefits. you can purchase a rider that allows you to collect a portion of your benefits while still alive if you are diagnosed with a terminal illness.
When Are Good Times to Consider Buying Term Life Insurance
Term life is a shorter-term solution that can be terminated when the need for it is over and can be increased when the need for it is greater. Typically, term life insurance is purchased when lifestyle changes prompt clients to consider purchasing term life insurance.
• Making Significant Purchases. Buying a new home, new vehicle, or other “major” purchase that would leave your heirs in a bind should you pass away should prompt a review of your insurance situation.
• Extra Protection for Child-rearing Years. Adding coverage is appropriate for parents on a tight budget who require solid protection for their children.
• Covering College Tuition. With the cost of four years of college at 30,000 or more, term life can ensure that your children finish school.
The Life and Health Insurance Foundation for Education, a nonprofit organization dedicated to helping consumers make smart insurance decisions, recommends term life for its return-of-premium option. According to LIFE, for a 20 to 30% premium, your insurer will refund the payments you made over the life of the policy. To take full advantage of this benefit, you must keep the policy in force for its entire cycle.
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