Can you cash in your term life insurance?

Term life insurance is a uniquely special form of life insurance that provides death protection for a specified period. It is pure protection and will pay off if the insured dies at any time during the term period.

Typically, the length of time that the term periods last are from 10, 15, 20, and 30 years.

Term life insurance is a low-cost form of life insurance which is a very fine advantage of the product.

In many cases, term insurance costs only 10 to 15 percent of a permanent life insurance policy.

Term insurance is also sold in many cases as convertible life insurance which means that it can be converted to a permanent policy at any time during the life of the term policy.

Learn more about term life insurance below and make sure you check out our free comparison tool above!

Life Insurance Underwriting

Term life insurance and permanent life insurance is purchased in much the same way.

The difference in the two types of policies is that term coverage ends at some point in time whereas permanent coverage lasts until the insured person dies, no matter how long it lasts, until age 100.

If an individual lives to age 100 with permanent life insurance, he is paid the face value or the death benefit, because the policy matures at that age.

About 1% of term life policies pay death claims according to a 1993 Penn State Study on life insurance, which leads one to believe that buying term life insurance is a complete waste of time.

This is not necessarily true because there are reasons for purchasing both term and permanent life coverage, depending on your situation.

When a person purchases term life insurance, he or she needs to get all the facts and be sure to understand how term life insurance works.

It should be known that term is purchased for short-term purposes only. You cannot cash in your term policy because there is no cash value.

You can outlive your term coverage if you just purchase a term policy and pay no attention to your future needs from year to year.

Why Buy Term Life Insurance?

Term life insurance is designed for specific purposes, and for those purposes, term life does a very good job. For people who are lacking in funds, yet who need large amounts of life insurance, a term life insurance program is a very good choice.

For example, a family with young children may not have advanced yet in their chosen professions or jobs so that the budget can be tight.

A large amount of term coverage can be purchased at bargain prices.

Should the breadwinner or breadwinners, assuming both spouses work die prematurely at young ages, the needed life insurance can provide money for the family to continue in a similar financial manner.

More Coverage When It Is Needed the Most

Term life coverage can provide maximum life insurance coverage when it is needed the most. When lots of coverage is needed for a shorter period, the term life coverage gets the job done.

Coverage can be planned to be there when the family is young and on through the time when children are still in college. When the family gets into middle age, children are mostly grown, the need for lots of life insurance may not be as apparent as before.

With fewer dollars going for life insurance expense, there is more money available for the expenses of raising a family, yet there can be enough in the way of a death benefit for the family if a death occurs.

The additional savings can be funneled into necessary expenses as a college fund and retirement needs.

The Anatomy of Term Life Insurance

The makeup of life insurance requires careful structuring of the mortality of large numbers, the assumed earned rate of interest over a long period, and the expenses that must be incurred to keep policies up and running.

These are three pillars of life insurance that are required for a policy to become initiated and for it to last throughout the period for which it is constructed.

When the proper assumptions are made and carried out, a policy will do the job for which it is intended.

How Term Life Insurance Works

A term life policy is calculated to last for a specific time, usually for 10, 15, 20, or 30 years. The premiums can be level or be increasing for that period as mortality charges go up in cost.

A reasonable rate of interest is assumed to grow an annual present value for the period of the term.

Finally, office expenses, marketing expenses, and general expenses have to be factored in and allocated to the policy.

There might be a small premium reserve for the longer years, but it is more of a bell curve as it increases towards the middle point of years, and then decreases to nothing.

Therefore there is no cash value that is available for loans, or for a surrender value if the policy is terminated prematurely by the insured.

If the insured dies during the term period, then a death claim is paid to the beneficiary.

If the insured lives throughout the term period, then the policy expires, and the insured would have had the coverage.

Convertible Term Life Insurance

Term life policies can have a convertible feature that allows a policyholder to switch the term plan to a permanent plan at any time during the term period.

This conversion is done at the attained age of the insured at standard ratings of the company at the time of conversion.

There is no underwriting required even if the insured has a medical condition that would normally cause a premium rating or a decline.

The rates for a convertible term feature is usually slightly higher than a policy without a term conversion feature, but it is a very worthwhile option to have available.

This is especially true in the longer term periods of 20 to 30 years.

In Conclusion

Even though a term life insurance policy cannot be cashed in as such since it has no reserve that is available to the policyholder, the low cost and higher coverage possibilities give the term concept great popularity.

When buying term insurance that is convertible, an individual has great flexibility for coverage that can be extended to longer periods.

It is difficult to totally plan exactly when to drop life insurance coverage and when to keep it going, as life’s twists and turns are many times unpredictable.

People need to have some life insurance all of their lives, not just when they are young.

We still need to have life insurance if we have any debts, mortgages, and burial funds for our last expenses, no matter how old we are.

Term life coverage that we have in our younger ages can be guaranteed to be converted to lesser amounts as we get older.

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