The 5-year term life insurance coverage is the least expensive and perhaps the Texas life policy with the least amount of value to the insured when comparing the benefits to other term insurance plans.

The 5-year term product, like all term products, is temporary in that it only covers a specified period of time, which in this case is 5 years. Like all temporary products it will build no cash value, it will pay no dividends, and it will generate no cash reserves to use to secure a loan. Another common characteristic that a 5-year term policy shares with other temporary life insurance products is that the premiums are almost always level, which typically means the premium will not increase during the life of the policy. In addition, the death benefit or face amount of the policy will not change. Due to the short duration of the 5-year Texas term policy, many policies offer a conversion option, which will allow the insured to convert the temporary policy to a permanent policy at the end of the 5-year term.

As previously stated, the policy builds no cash value, so upon the death of the policy holder the policy will pay the beneficiary(ies) the face amount of the policy. The insured can choose different ways to have the proceeds from the policy paid to the beneficiary. The proceeds can be paid in the form of a cash settlement or lump sum payment, which is the most common, or the proceeds can be distributed over time according to specified schedule.

The reason a 5-year term policy is so inexpensive when compared to a 10-year, 20-year or even 30-year term is because the benefits will be paid only if the insured dies during the 5-year coverage period. Since the coverage period is so short, the insurance carrier has very little exposure which is reflected in the premium. The reduced risk, coupled with the underwriting practice that the insurance carrier will usually review the applicant’s medical records and/or results from a paramedical (physical exam), means that the potential financial exposure for the carrier is somewhat limited based on past and current data.

The 5-year term policy is suitable for protecting a lender on a short-term bank loan or car loan, or for guaranteeing a business purchase that will be completed over a few years. In these situations, the lender or seller of the business is protected from the borrower or buyer passing away and not being able to complete repayment of the loan. In order to secure the loan transaction, a lender or seller will be named as the beneficiary on a 5-year term Texas life insurance policy.

The insured can also use the 5-year term policy to protect the family against the burden of college tuition or a short-duration loan such as a home improvement loan. In these situations the beneficiary is the family member, typically a spouse, who would be responsible for the remaining debt upon the death of a spouse. A 5-year term policy can secure repayment at a very cost competitive premium while a short-term loan is being repaid.

In order to provide additional security to a 5-year term policy, riders can be added to the policy. Be sure to contact your licensed agent for a list of riders. Some of the more common riders are as follows:

Return of Premium rider or ROP is a very popular rider. Some policy holders do not like the fact that premium is being paid for a benefit that they will never see. The premium paid by the insured only benefits the beneficiaries. Insurance companies created the ROP rider which will return the premiums paid into a policy if the insured outlives the policy. The drawback is that the premium cost increases to account for a full return of premium. Individuals can expect a 50% rate-up in policies that offer the ROP.

Waiver of Premium rider is also a very valuable rider. If the insured becomes disabled, the insurance company will pay the premiums in full, after an elimination period of 6 months, in order to maintain the coverage. This allows the insured to maintain the life insurance policy in order to provide financial protection for the family.

An Accidental Death rider is a very low-cost addition to your policy’s monthly premiums. The rider specifies that in the event of death caused by an accident, the insurance company will pay the beneficiary a multiple of the policy death benefit, usually at a rate of two times, but sometimes higher depending on the policy.

If you are considering a 5-year term policy, it is best to contact a Texas life insurance broker in order to determine if the coverage is suitable or if there are other more favorable options.

Tim Jarvis is a licensed and experienced Texas life insurance agent who focuses on educating his fellow Texans on the best way to shop and quote Texas life insurance coverage

Tim Jarvis is a licensed and experienced Texas life insurance agent who focuses on educating his fellow Texans on the best way to shop and quote Texas life insurance coverage http://www.mytexaslifeinsurance.net

Author Bio: Tim Jarvis is a licensed and experienced Texas life insurance agent who focuses on educating his fellow Texans on the best way to shop and quote Texas life insurance coverage

Category: Finances
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