I'm not quite sure if I even understand what 'regular' life insurance is, but can anyone explain this please?
Can someone tell me what "Term" Life Insurance is?
- Thread starter TripleAAA
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dullard
Elite Member
- May 21, 2001
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Regular: Large monthly bills. You get the money you signed up for when you die.
Term: Small monthly bills. There is an age limit - often 70 years old - if you die before it you get the money. If you die after it you get absolutely nothing.
Basically Regular life insurance is guaranteed money (unless you violate some rule like suicide). Many people get this when they want to leave their family a large lump sum of money and cannot save it themselves. However many people cannot afford the monthly bills. So term life insurance comes in. If you have term life insurance you will get a happy ending: (A) you die before 70 then your family gets lots of money, or (B) if you die after 70 you are lucky to have a long life and who cares if you wasted your money on insurance.
Term is usually used for people who have families that they support. If you die when you are 50 and have a wife and kids, the term insurance pays for them to survive. Once you reach retirement age and no longer work, then your family doesn' t need to worry about replacing your income when you die. So you don't really need life insurance anymore.
Term: Small monthly bills. There is an age limit - often 70 years old - if you die before it you get the money. If you die after it you get absolutely nothing.
Basically Regular life insurance is guaranteed money (unless you violate some rule like suicide). Many people get this when they want to leave their family a large lump sum of money and cannot save it themselves. However many people cannot afford the monthly bills. So term life insurance comes in. If you have term life insurance you will get a happy ending: (A) you die before 70 then your family gets lots of money, or (B) if you die after 70 you are lucky to have a long life and who cares if you wasted your money on insurance.
Term is usually used for people who have families that they support. If you die when you are 50 and have a wife and kids, the term insurance pays for them to survive. Once you reach retirement age and no longer work, then your family doesn' t need to worry about replacing your income when you die. So you don't really need life insurance anymore.
So....
If I went the Regular route, I could conceivably sign up for a 5 million dollar life insurance deal, maybe pay I don't know, $1,000 a month (lets just say), die the next day, and my family would get 5 million dollars?
The reason I ask is that I think my grandpa is on some huge life insurance plan and it sounds to me like its a term plan, but he is old and has been on it a long time. So, if the requirements were that he had to live to age 85, and he died before that, our family wouldn't get any of the money he had been dishing out this WHOLE time?
Thanks for the info...
If I went the Regular route, I could conceivably sign up for a 5 million dollar life insurance deal, maybe pay I don't know, $1,000 a month (lets just say), die the next day, and my family would get 5 million dollars?
The reason I ask is that I think my grandpa is on some huge life insurance plan and it sounds to me like its a term plan, but he is old and has been on it a long time. So, if the requirements were that he had to live to age 85, and he died before that, our family wouldn't get any of the money he had been dishing out this WHOLE time?
Thanks for the info...
Term life is insurance is done for a specific amount of time. When you quit paying you get nothing back. If you die the policy pays off. For example, I get life insurance through the Navy. If I die they pay. When I leave the service, I get nothing from them. Term is cheaper than "whole " life.
"Whole" life insurance is a little different. The premiums are higher but if you have it for a certain length of time, if you cash it out, you get a portion of your money back. Of course if you die, they pay.
I've probably oversimplified it but I think those are the basic differences. Somebody here can probably expalin it better
dullard
Elite Member
- May 21, 2001
- 25,605
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Many times there is a minimum amount of time that you must have the insurance to collect. So generally your example of dying the next day won't give you anything. However I suppose there are some insurances that will do that.
You really need to see the insurance policy to know. I personally don't know of one that requires you to live past 85 to collect. Usually it is the opposite for term life, if you live too long then you don't collect.
Regular life insurance builds cash value. That $1000 you give monthly accumulates in your name. If you stop paying before you die, you can get it back.
Term life insurance doesn't build value. That money you give monthly goes into the pockets of the people who die before the given age. If you stop paying before you die, all the money you spent was a waste.
You really need to see the insurance policy to know. I personally don't know of one that requires you to live past 85 to collect. Usually it is the opposite for term life, if you live too long then you don't collect.
Regular life insurance builds cash value. That $1000 you give monthly accumulates in your name. If you stop paying before you die, you can get it back.
Term life insurance doesn't build value. That money you give monthly goes into the pockets of the people who die before the given age. If you stop paying before you die, all the money you spent was a waste.
Hello, this is your history lesson in life insurance for today, from your friendly life-insurance-licensed planning-type person.
In the beginning, man died. And man also invented money. And man was saddened by death and man said "let us create something that will make death more pleasant, an insurance to provide a death benefit should something occur". And man said, for a yearly fee, we can provide coverage for a set time for people who need protection for their kids and to have general insurance. And man called this "Term" and all was good. Then man invented the mortage and realized that people may want the amount of coverage to increase so man invented decreasing and increasing term insurance and the rider (an addition to a basic policy). Then man thought that people may need protection for the entire life, to pay so it accumulated a cash value which should equal the death benefit at the end of 100 years, which is the maximim most people will live. So man thought hard and invented "Whole Life", to provide protection for an entire lifetime using a fixed premium. Then man thought hard and said "this is good, we have term life for cheap coverage and whole life to cover the person for an entire life, but we need to have flexible premiums". So man invented universal life which has a cash value and accumulates tax-deferred while the company paid a fixed interest rate. Man looked at this and said it was good. But then man invented the mutual fund and said "why should the company give me a fixed return and a variable premium? I'd rather have a fixed premium and a variable return, like whole life but investing in mutual funds to take advantage of stocks and bonds." And man invented variable life, with fixed premiums, a death benefit, a cash value against which loans could be taken, tax-deferred growth in the separate account and lots of neat features like term riders for cheap coverage. And man saw this and liked it. And man settled down and was happy with variable life. But then man looked and looked and realized more flexibility could be had. Man said "why am I paying for the company to manage my money, only getting a fixed death benefit, have to pay fixed premiums, and not enough in vestment options?". And man invented variable universal life with a variable death benefit, variable premiums, variable cash value and enhanced loan provisions like 10 % at 0% per year fromn the cash value which grows tax-deferred.
Man saw variable universal life and saw that it was permanent insurance protection. And man liked what he saw and man kept VUL. And everyone lived happily ever after (at least for the meantime until a better insurance product comes out)
Term has no cash value, insures for a fixed period of time, may be renewable, and provides a set death benefit with fixed premiums. It is the cheapest insurance out there because so few people ever collect on term.
If by "regular" you mean whole life, then I explained it above.
Hope this helps
Cheers !
Post scriptum:
If I went the Regular route, I could conceivably sign up for a 5 million dollar life insurance deal, maybe pay I don't know, $1,000 a month (lets just say), die the next day, and my family would get 5 million dollars?
Yes, and it would be tax free to the beneficiaries but part of your estate if you were both the insured and the owner, and thus subject to the estate tax (1 million exclusion this year), yet not ordinary income tax. At least it avoids probate...
In the beginning, man died. And man also invented money. And man was saddened by death and man said "let us create something that will make death more pleasant, an insurance to provide a death benefit should something occur". And man said, for a yearly fee, we can provide coverage for a set time for people who need protection for their kids and to have general insurance. And man called this "Term" and all was good. Then man invented the mortage and realized that people may want the amount of coverage to increase so man invented decreasing and increasing term insurance and the rider (an addition to a basic policy). Then man thought that people may need protection for the entire life, to pay so it accumulated a cash value which should equal the death benefit at the end of 100 years, which is the maximim most people will live. So man thought hard and invented "Whole Life", to provide protection for an entire lifetime using a fixed premium. Then man thought hard and said "this is good, we have term life for cheap coverage and whole life to cover the person for an entire life, but we need to have flexible premiums". So man invented universal life which has a cash value and accumulates tax-deferred while the company paid a fixed interest rate. Man looked at this and said it was good. But then man invented the mutual fund and said "why should the company give me a fixed return and a variable premium? I'd rather have a fixed premium and a variable return, like whole life but investing in mutual funds to take advantage of stocks and bonds." And man invented variable life, with fixed premiums, a death benefit, a cash value against which loans could be taken, tax-deferred growth in the separate account and lots of neat features like term riders for cheap coverage. And man saw this and liked it. And man settled down and was happy with variable life. But then man looked and looked and realized more flexibility could be had. Man said "why am I paying for the company to manage my money, only getting a fixed death benefit, have to pay fixed premiums, and not enough in vestment options?". And man invented variable universal life with a variable death benefit, variable premiums, variable cash value and enhanced loan provisions like 10 % at 0% per year fromn the cash value which grows tax-deferred.
Man saw variable universal life and saw that it was permanent insurance protection. And man liked what he saw and man kept VUL. And everyone lived happily ever after (at least for the meantime until a better insurance product comes out)
Term has no cash value, insures for a fixed period of time, may be renewable, and provides a set death benefit with fixed premiums. It is the cheapest insurance out there because so few people ever collect on term.
If by "regular" you mean whole life, then I explained it above.
Hope this helps
Cheers !
Post scriptum:
If I went the Regular route, I could conceivably sign up for a 5 million dollar life insurance deal, maybe pay I don't know, $1,000 a month (lets just say), die the next day, and my family would get 5 million dollars?
Yes, and it would be tax free to the beneficiaries but part of your estate if you were both the insured and the owner, and thus subject to the estate tax (1 million exclusion this year), yet not ordinary income tax. At least it avoids probate...
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