Term
life insurance is a product that most
people choose to evaluate in a few
steps. We can see this by the ages at
which people generally apply for term
life coverage. There tends to be a
general range of term life applicants in
their 30�s and another range of
applicants in their 50�s. This isn�t to
say that you don�t have lots of
application before, between, and after
but these are the two common age
bands. This isn�t to hard to
understand as these age bands also match
up with huge life changes.
In
the 30�s you generally have new
families, marriages, babies, mortgages,
and businesses. This directly translate
into a need for life insurance and since
term life rates are the most affordable
to a person just starting new families,
this makes perfect sense. Later in your
50�s, you have generally raised children
who are now adults and you�re more
looking at term life insurance to cover
a spouse, mortgage, or business. 50 is
still really young (especially these
days) but you are starting to think
about leaving something to your loved
ones or taking care of them in case
something happens. Let�s just say
you�re more responsible in your 50�s
(hopefully). So we have these two
different periods with different needs
and situation but a common need for life
insurance protection. This is where the
question of combing term life insurance
policies come into play.
Usually, when you�re in your 30�s, extra
cashflow is not easy to come by. There
are so many constraints on your income
already with new babies, mortgages,
etc. With this in focus, most young
adults will buy a certain amount of term
life coverage. Let�s say that $500K
would be ideal. The young adult may
choose to buy $250K of term life to keep
his costs down but still get some amount
of coverage. We can definitely
understand this and ultimately, any
amount of coverage is better than none.
Eventually, the same person may find
that finances are better as they move
forward in their professional life and
with their financial obligations
increasing, they want to look at adding
additional life insurance. What�s the
best way to do this?
Continuing with our example above where
the person has $250K, it�s a question of
quoting the various options. Let�s
assume we want to go to a total $500K
and 10 years has passed by. First, we
take the amount of the existing policies
monthly premium. We then quote a new
policy at $250K and a separate quote of
the full $500K. We now have to two
basic rates. The combined policy rate
of our existing term life policy and the
new $250 against the full $500K policy.
Which will be cheaper? It depends. The
combined policy set-up should be cheaper
since the original $250K was bought 10
years earlier and when you the applicant
was 10 years younger. There may be
savings however with the $500K since
that�s a bigger price break and tends to
be cheaper per $1000 of term life
coverage. The only way is run the term
life quote and check. The actual rate
is part of the equation of a combined
policy. What about the total length of
coverage. You�ve used up a part of the
original plan�s term already. You might
�extend� the benefits with new coverage
of either the $250K partial policy or
the full $500K which can be
advantageous.
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