Many people who are between 20 and 30, seem to overlook getting a life insurance policy believing it’s not necessary at this particular time in their lives. Many believe due to great health and living in a lower income bracket they can ignore buying life insurance. However, in reality, it doesn’t matter how old you are, if you were in a fatal accident, the loss of your income will affect those in your life.
There are several different life insurance policies but if you are in your 20s and 30s, you might want to learn more about a 20-year term life insurance plan which will cover you for 20 years and the payout will remain the same. Should something happen to you, your beneficiary will get the full amount of the policy. A 20-year term life insurance policy is a good choice for younger people because it’s a great deal and cheaper than whole life or universal life insurance. The downside, should you outlive the term of the policy, you will not get anything.
About 20 Year Term Life Insurance Policies
This is a great plan for adults who want extra coverage and the easiest way to provide financial help to your family should something happen to you. Another option that might be available to you is a no exam option where you do not need to take a medical exam.
When your policy ends in 20 years, you can either apply for a different life insurance plan or renew this one at a different rate due to your age at that time. Your option to renew should be guaranteed without a medical exam up to the age described by your policy.
If you are looking into getting life insurance, you should consider a 20-year term life insurance policy. Should something happen to you, you can be sure your financial responsibilities will be taken care of. Your family will be taken care of should you suddenly pass away. This is a really good policy for you at this time in your life.
In case you didn’t know, most people go through their greatest financial responsibilities between the ages of 21 to 60. Many of these expenses include college loans, raising a family, paying on a mortgage, and setting up for retirement. As you can see, during these years, people are making their most important financial decisions.
Adding to this, if you are married and/or have children, they are depending on you to provide for them financially. If you purchase a 20-year life insurance policy, you will protect your family over the next 20 years should you pass away.
Is a 20 Year Term Plan Right For You?
There are many life insurance types that make shopping a bit overwhelming. Even term life has so many options to choose from. There are several things you should consider before purchasing a 20-year life insurance policy. You should know that a 20-year policy does not increase in value over time as the value is set at the time you purchased it and that never changes.
That said, once the policy ends after 20 years, if you renew it, instead of choosing a different or new plan, it will be more expensive. Also, if you are younger, you might want to consider a policy that will last longer such as a 30-year term life insurance policy or a permanent life plan. These plans will ensure the policy will stay in place at a set cost until your children have grown and moved out of your home.
When considering a 20-year term life insurance policy you want to ensure you get as much coverage as possible for your family. You also want to make sure the policy is affordable, so know ahead of time how much money your family will need if you pass away. Obviously, the more money needed the higher the premium will be, so make sure you will be able to make the payments. You should shop around and comparison shop for different policies and have a clear understanding of what your financial situation is at this time. If you use an independent agent to shop around, they will help you find the right insurance to suit your needs and those of your family.
Once you have purchased the right policy for you, sit down and decide who will receive the money after you pass away, this person is referred to as the beneficiary. If you are married, your spouse is usually the most logical choice. If you have children but not married, your children would become the beneficiaries in most cases. You can also opt to list your beneficiaries if you have several children to ensure the money will be evenly divided between them.
Who Should Choose 20 Year Term Life Insurance
Assume you are 30-years-of-age and have 2 children. 20 years from now you will be 50 and your children will be in their 20s. Also, by the time you reach 50, you should be in a more financially stable situation compared to your 20s & 30s. Possibly your home mortgage is paid off, you have invested wisely, and are relatively out of debt. By the time you are 52, your kids will probably be out the house and on their own and you have built a nice nest egg. Should you pass away, your spouse will be able to live off your savings and investments. The bottom line, the more financially secure you become, the less likely you will need insurance.
Mistakes You Should Avoid When Buying Term Life Insurance
Here are two mistakes to avoid when purchasing term life insurance.
The First Mistake: Choosing a Low Coverage Amount
You decide to purchase a policy that has very little coverage such as an insurance plan through your employer. If you are the main source of your family’s income, you will be lucky if you get even one year’s worth of your kid’s college tuition and certainly not enough for your family to live on. Getting appropriate life insurance coverage will allow your family to live comfortably after you have passed away.
You should consider getting coverage for both yourself and your spouse. Even if your spouse is not employed, they are taking care of the household and children while you are at work and they should be covered as well. If your spouse passes away, your children are going to go through many difficulties. You might have to hire someone to take care of your children in everyday household duties including preparing meals. You might even have to cut back your hours at work to take care of your kids.
The Second Mistake: Buying a Short Term Policy Because It’s Cheaper
Rates for a 10 year will be less compared to rates for 20-year term life insurance policy. To save money, you decide to purchase a much shorter term life insurance policy but that is a really bad idea. It is highly recommended you get a minimum 20 to 30-year term life insurance policy. These policies are a great middle ground policy as they are not too short nor too long. Some people will choose to get a 10-year term life insurance policy but consider what would happen if you developed medical issues over the next 10 years. You might not be able to get a new policy or it will cost you an arm and a leg! Shorter-term life insurance policies have there place in certain situations but are often just a really bad choice for the majority of situations.
Whether choosing a 20, 25 or 30-year term policy will depend on your situation. It’s advisable you purchase a policy based on when your children will be heading off to college and living on their own. If you do not have children but plan on it in the future, you should purchase a 30-year policy. If your children are around 5 years of age, a 20-year policy is your best bet.
About Level-Term Life Insurance
This Life Insurance policy is the least expensive and is guaranteed to be the same amount for the given number of years. The terms are usually 10, 15, 20, or 30 years (i.e. 20-year life insurance). It will give you what you are looking for to protect your loved ones if you pass away. You do not have to deal with policies that have all the bells and whistles but will cover your children from the time they are born until they graduate from high school. The only downside to this policy, when the term ends, you will be paying more for the premium because you are older. The good news is if you are under 45 you will more than likely get a very decent rate!
Whole Life Insurance vs Term Life Insurance
There are many misconceptions and bad information out there when comparing whole life insurance against term life insurance. We are here to clear the air with facts. Both policies have their benefits as well as disadvantages. Either whole life or term life might be perfect for you, depending on your current situation.
What you might not know, both policies will offer financial protection for your family if you pass away. That said, whole life and term life are very different policies with different functions. It’s no wonder that people become confused and do not understand their differences, making it very difficult to know if they have chosen the right policy for them. We are going to try and explain in order to make it as simple as we possibly can.
Here are the benefits and disadvantages when deciding to purchase one or the other:
The Length Of The Coverage
The biggest difference between these policies is how long the coverage is in effect. Term Life Insurance will only cover a specific term (number of years) thereby giving these policies their names. There are many terms out there but the most popular lengths of time, in years, are 10, 15, 20, 25 and 30-year term.
Another kind of term policy is known as “Lifetime Term” which can vary from one provider to another. Lifetime Term is actually a Guaranteed Universal Life policy but acts like a term policy to a specific age. The common age is 90 but can go up to age 121 and depends on the insurance company. A “Lifetime Term” means your policy will be active until you reach that insurance company’s specified age.
A Whole Life Insurance policy is coverage for your entire life, no matter how long that will be. As long as you make your payments, the insurance company is required to keep the terms of the contract. The insurance company cannot cancel your policy, even if your health changes or you manage to live beyond 100 years. Your Whole Life Insurance policy is yours, no matter what!
That said, you can drop either policy if you choose to. A Term Life Insurance policy can be canceled or you can just stop making payments. A Whole Life Insurance policy can be surrendered for its cash value. Keep in mind, if you cancel your Whole Life Insurance contract early on, there might be surrender charges, so be aware of all contract requirements and the terms of surrendering the policy.
Both term life insurance and Whole life provide a huge variety in benefit amounts. The life insurance payout amount that you choose will depend on your budget and if the life insurance company offers that amount. Most life insurance companies offer payout amounts from $100,000 to over a million dollars in coverage. Some companies offer term policies that are less than $100,000 while others do not.
The Difference In Prices
When shopping for a life insurance policy, you should take the cost into consideration. These two kinds of life insurance vary greatly in their prices. Term-Life Insurance is a great deal less expensive than Whole Life Insurance.
Whole Life Insurance has many added benefits and other features that are not provided with a Term Life Insurance plan. Any time there are added features and benefits, the price will be much higher.
Term Life is very simple and clearly laid out. The insurance company knows the length of time you are purchasing protection as well as your age and health. They know that a certain percentage of people will cancel their policies on a yearly basis. They also know that people within a certain age group are classified with certain risks, and the percentage that will pass away each year is quite low.
Term Life is built on statistics by the company knowing that enough people will outlive the policy or cancel it. In turn, this makes money for the insurance company even if they do pay out a certain number of claims. In a nutshell, people who purchase Term Life Insurance are expected to outlive their policy!
On the other hand, with Whole Life Insurance, the company knows that eventually, they will have to pay out a death claim because the policy never runs out. Even though they take into account the number of people who will cancel their policies, they know that at the end of a year, they will still make a profit.
You might wonder how they are making profits. Quite simply, even though they are holding your money, it’s through investments, not in cash. Most of these companies’ cash and reserves are held in a portfolio of Treasury securities that earn a given interest rate.
What Is The Cash Value Of The Different Policies?
Very simply, Term Life Insurance does not have a cash value. The contract is very clearly laid out which specifies the coverage at a face amount of the policy in return for the scheduled premium payments. If you miss a payment on the premium, it will go into a short grace period. If the payment is not made, after that time, the coverage will be canceled.
A Whole Life Insurance policy is a little more complicated because, on top of providing the face amount of coverage, the policy will build up cash value for you. This cash value is yours and you can withdraw it when you want, use it for a loan, or pay a premium. The advantage of a cash value, it can become quite significant and the policy is designed in such a way that it will eventually become equal to the face amount of the policy. That said, it will take a long time to equal the amount of the policy which is usually between 95 to 100-years-of-age. If this happens, the policy is regarded as “Mature” and the face amount is paid out.
This usually is not the chosen method since most people would prefer that their beneficiary receives the death claim tax-free instead of having it passed down through the estate.
If you choose to withdraw your tax value through a partial surrender or as a loan, you can use the money for whatever you want. Many insured people use the money to pay off a student loan, as a down payment on a home or use it for a much-needed vacation.
You do not have to pay back the loan but will accumulate a small percentage interest and the death benefit will be reduced by the amount of the unpaid loan.
About Whole Life Insurance Dividends
This is another big difference between Term Life Insurance and Whole Life Insurance. Whole Life Insurance can pay you an annual dividend but Term Life does not provide dividend payouts. In some cases, Whole Life Insurance policy owners are looked at as part owners of the life insurance company (Mutual Whole Life Companies) and receive dividends. Other cases, dividends are paid by the life insurance company to be competitive using various equity structures. In either case, the dividend can be quite beneficial to you.
This might not seem significant but the amount of the dividend payments can increase over time and become quite significant in the long term. You can also use dividends to pay for premiums or to purchase even more paid-up life insurance which will increase the dividends even more over time. All said and done, dividends can be taken and used any way you wish as a cash payout.
Where Do Dividends Come From?
Life insurance companies bring in a certain amount of cash each year. They have to pay their employees, fund their operating expenses, pay out all death claims, and pay into their reserves for future claims. Once all expenditures have been met, any surplus money that is left over is paid out as dividends.
Keep in mind, life insurance companies have enormous reserves which are then invested and they bring in a large amount of money from their bond holdings each year. If the interest rate changes so do their rate of return on these holdings. During a higher interest rate climate, life insurance companies will pay higher dividends. Usually, the dividend rate is calculated by the life insurance company but the actual rate is only announced each year before making payments and not always exact. Well-established insurance companies have never missed paying out dividends, dating back to The Great Depression but these companies are not obligated to pay out dividends. If you are shopping around for Whole Life Insurance, always inquire about their dividend payment history before purchasing a policy from a company you do not know anything about.
Summarizing Term vs Whole Life
Term Life is inexpensive because it’s simple, the majority of people will outlive these policies, and there is no cash value or dividend payments. Whole Life is more expensive because, at some point in time, the insurance company will have to pay out because it lasts for the entire life of the policyholder. Also, it’s a higher cost because of all the bells and whistles including cash value and dividends.
Figuring Out Which Policy Is Best For You
You must shop around to find the answer because no single policy fits everyone’s needs. Both Term Life and Whole Life provide the right coverage for different buyers. If you need a policy that is not expensive for approximately 20 years and want to make sure your children will be protected, then Term Life is the best choice. If you are wanting an investment component to your life insurance policy and coverage for your entire life, then Whole Life is probably the best choice for you.
In A Nutshell:
There are many different kinds of life insurance policies. You should sit down with an experienced independent life insurance agent to discover what policies are best for you. There are many factors involved but you will be armed with what is best for you and then you can start shopping for the insurance company you want to get your policy from.
Spectrum Insurance Group is made up of life insurance agents who are licensed in all 50 states and the District of Columbia. Spectrum Insurance Group has helped 1000’s of consumers purchase life insurance online & over the phone.
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