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A term life insurance policy is one of the life insurance policies that one can take in case you need a cover for a particular period time. Several benefits are attached to taking a term life insurance policy. Such benefits depend on the type of term life insurance policy that you take.
When you are taking a term life insurance policy, there are so many things to consider. Premiums modes are one of the things that you should be careful about. The type of premium mode you take will determine so many things, including how you benefit from your insurance policy.
Types of Premium Modes
There are various types of premium modes that you will find in relation to term life insurance. Selecting the best one for you can be challenging. However, all you have to do is consider all the available options to land yourself on the best one.
#1. Level-Premium Term Life Insurance
Level-premium insurance is a type of premium mode in which you are supposed to pay the same amount of premiums throughout the insurance life. In this case, your premiums will remain the same throughout the term irrespective of various conditions outside the policy.
For this type of premium, you have to take it only if you know you have the ability to maintain that price of premiums for the period stated. The terms can range from 10, 15, 20, or 30 years. It is upon you as the policyholder to choose a period that interests you.
This type of premium mode comes with its advantages and disadvantages, which include.
Advantages
- You enjoy paying the same price for your premiums throughout the term
- You are not affected by any changes in the outside environment such as inflation that may affect the premiums
- You will get all your benefits in case of death within the specified period or term
- It is a good option for people who want to leave cover for their loved ones within a specified period.
Disadvantages
- In case of death outside the agreed term, there are no benefits received.
#2. Decreasing Term Life Insurance
It is another type of premium mode in which you get decreasing premiums type of term insurance. For this premium, the amount of money you are required to pay as premiums continuously declines over time.
Irrespective of the term you have signed up for, the premiums amounts will keep on declining throughout the term of insurance. It is a type of term life insurance that one can take in case you doubt your ability to pay the premiums in the future. If you want to have an easy time paying premiums is also a good idea. For this type of term insurance policy, upon your death, you will receive all the benefits irrespective of time.
Advantages
- The decreasing premium method offers you an easy time paying.
- You are assured of getting the benefits upon death irrespective of time.
- It is a good option for seniors who do not have a lot of income.
Disadvantages
- The premiums amounts may start being higher when compared to other options such as level-premium term insurance.
- You may pay the premiums for a very long time before you can get the benefits.
#3. Regular Premium Payments
Regular premium term insurance refers to a type of term insurance in which you are required to pay the premiums throughout the insurance. In this type of policy, if you want to keep the policy active, then you have to pay the premiums no matter how many years.
In case you fail to pay the premiums, it means that you will lender the policy inactive.
Advantages
- The benefits received once the policy has matured are high. This is because you have been paying the premiums throughout the policy life.
Disadvantages
- It has high chance of policy lapsing. When you are required to pay your premiums throughout the term of insurance, it becomes very challenging. As a result, this type of premium mode increases the chances of someone missing his/her payments.
- When you miss your payments, it leads to a policy lapse. A policy lapse can easily lead to losing the coverage entirely.
- The payment may last for a long time and even beyond your retirement. Since in this type of premium mode, you do not have an end to paying your premiums and do not know when you will die, it becomes a challenge.
Regular premiums will remain a burden to you both when you are young, employed and able to work, to when you are already retired. As a result, very few people are in a position to keep up with this type of pressure, especially when you do not have a source of income.
#4. Limited Premium Term Insurance
A limited premium term insurance is a type of premium mode in which you are allowed to pay premiums for your term insurance for only a specific period. In this case, irrespective of the period of your insurance, you will pay the premiums for a limited time.
For example, you may have a term insurance policy that is meant to last for 30 years. In this case, you may be asked to pay the premiums for just 15 years. However, that does not mean that your policy or coverage will be affected. The rest will remain the same.
Advantages
- It allows easy utilizing of long coverage durations. When you take a limited premium type of policy, you can get the best from long coverage durations. It is an essential type of policy for people who are worried about retirement or lack of a source of income.
In case you are a senior about to retire soon, then this is the best choice.
- A shorter period of paying premiums. This is the most crucial advantage you take by using limited premiums term insurance. You will be able to complete paying the premiums within a very short period as compared to a regular premium method.
- Suitable in case you have a short career span. The type of career span becomes a challenge to many people when taking a term life insurance policy. For many people, they are worried their career may come to an end, and they are left with no income. With this type of premium, you can do calculations and know what to go for.
- Reduced chances of a lapse. There is nothing as bad as experiencing a policy lapse. However, when you use limited premiums term insurance, those chances are significantly reduced. You can try as much as possible and pay your premiums for a limited period, and you will be okay.
Which One is Better?
Which of the above premium mode is better than the other lies on the policyholder. Different policyholders have different requirements and abilities. Before resting to a particular mode, always take your time to consider your position and compare it to the terms of the above premiums modes.
Consider the advantages and disadvantages of each case to determine which is suitable for. It is also essential to visit an expert, discuss your case, and get help in selecting the best premium mode for you.
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