Learn About 20 Year Term
The development of the 20 year life insurance policy into one of the most sought after, the most loved and most popular life insurance policies was by no means an accident.
A very small life insurance company felt that this was one of the best policies created and set out to prove it…
Then began a sales and recruiting campaign that was almost cult like. Other life insurance companies jumped on the band wagon
20 Year Life Insurance Takeover
The big life insurance companies accustomed to selling whole life insurance did not know what hit them. Many had to update their portfolios or at least their marketing practices.
Then came the debates as to which companies had the cheapest 20 year life insurance policy. The original life insurance company kept on selling and has become one of the largest companies in the industry…
The interesting thing is that this company that showed such a dislike for cash value life insurance soon was selling mutual funds in order that their vast policy owner base would have an intelligent vehicle through which they could accumulate some money.
Because of competition the premium of the 20 year life insurance policy kept getting cheaper. The consumer gained tremendously as a result. Here is how this policy works.
The Death Benefit
The 20 year term life insurance policy is sometimes referred to as a 20 year term policy or a 20 year term life insurance policy.
This policy has a guaranteed level death benefit that remains level for the entire 20 year duration that can be paid out either in a lump sum or in the form of a monthly income when the insured dies.
If the policy is a small policy it may be wise to take these proceeds in one lump sum. For larger policies that decision is an arbitrary one.
Should it be your decision to have proceeds of your 20 year life insurance policy paid in the form of an income there are many options. Here are some descriptions of how it may work for you.
- The Fixed Amount income Option
You could choose to have a specified amount of income paid out each month, for example, until the proceeds of the policy are exhausted.
In the long run because the unpaid balance earns interest, if you added up the amount paid out, it would be considerably more than the face amount of the policy itself at death.
- The Fixed Period Income Option
With this option you would tell the life insurance company to distribute the proceeds of the policy to your beneficiary over, for example, a period of 5 years.
With this option the total would also be more than had the death benefit been paid in one lump sum.
- The Life Income Options
The death benefit of the 20 year life insurance can also be paid in the form of a life income. The life income can be paid out in several different ways.
The largest amount of life income you could have paid is a life income with no guaranteed period. You could also choose a life income with a 20 year guaranteed pay out period, a 15 year guaranteed payment period, a 10 year guaranteed period or a 5 year guaranteed period.
The shorter the period of guarantee the higher the monthly income.
- The Interest Income Option
If you wanted the death benefit to be paid at a specific point in time you could tell the life insurance company to hold on to the principal and pay only the interest to your beneficiary at preselected intervals.
The company would pay the lump sum at the selected time. Let us suppose that your 20 year life insurance policy was earmarked to pay for your child’s college education if you died before s/he is ready to enter college.
The company would hold the principal until college time and pay it out then.
The 20 year policy is often used for family situations. Business people also use it to fund buy-sell agreements in the event of the death of a partner or shareholder.
Sometimes a business may have an employee that is so good at their job that the loss of this key person could be quite costly. A smart business person would buy a policy on this employee’s life.
Upon death the proceeds of the 20 year life insurance policy would be paid to the business.
- Waiver Of Premium Rider
You have the option of adding the waiver of premium rider to your policy.
If you should become disabled, anytime after six months of disability, the life insurance company will step in and pay your premiums for you for as long as you are disabled even if it is for entire life of the policy.
You won’t owe them anything for paying the premiums for you.
- Accidental Death Benefit Rider
If you, for example, should die in an automobile accident the life insurance company will pay two times the amount of death benefit to your beneficiary.
If your 20 year life insurance policy was for $1,000,000 the life insurance company would pay $2,000,000 if you died in an accident.
There is an extra premium charge for these riders.
Term Life Insurance For 20 Years
20 year life insurance or 20 year term insurance. With most companies premiums are guaranteed to remain level for the entire 20 year period.
Other companies Begin with a lower premium than is usual and keep it level for the first 5 or 10 years.
The premium may increase every 5 years thereafter. 20 year term life insurance is pure life insurance protection.
There are no cash values and the policy does not qualify for dividends. The death benefit is guaranteed to remain level for the life of the policy.
This policy may be totally or partially converted to permanent life insurance at any time without any evidence of insure-ability…medical examination.
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20 Year Life Insurance Policy Uses
A 20 year term life insurance policy or a 20 year term policy can be appropriately used to cover a mortgage. If the insured dies the mortgage is automatically paid off and the balance of the insurance proceeds, if any, is paid to the beneficiary of the policy.
Business owners can also use this type of insurance to cover outstanding loans. It can be also used to protect partners in the event of the death of one of the partners. It can be used to shield the company in the event of the death of a key employee.
The death benefit is generally income tax free if it is not a part of the deceased persons estate.
Young people use this policy to protect loved ones while they get on a sound financial footing…say after they have just graduated college.
The 20 year life insurance-term policy can be used by young married couples while they aggressively save in anticipation of an addition to the family.
Explanation Of 20 Year Term
20 year term insurance, quite a well received policy.
Recently I was having a casual talk with a long time friend who, like me, had been in the life insurance business for many years.
It occurred to us that so much has changed over the years…not only the attitude toward varying products but even the ways to which they are referred.
In fact many of the basic products have improved and some new ones have been created.
The 20 year term insurance policy for example used to be simply known by that name.
Now the more popular name for the policy is 20 year term life insurance. For those people who do not know how this policy works here is an explanation.
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20 Year Term Insurance At Work
The 20 year term policy is pure insurance which has a level death benefit and no cash values. Upon death the face amount of the policy will be paid to whoever is named beneficiary usually in one lump sum.
The death benefit of your insurance policy can also be paid in the form of an income.
If it is a large policy and you want to be certain that the proceeds are not wasted the income may be a good choice. There are several income options available for your use.
The premiums of most 20 year term life insurance policies remain the same for as long as you own your policy. Sometimes a policy is designed to have the premiums increase after five or ten years.
The actuaries start your premiums lower than usual because the likelihood of the insured dying in the early years is very slim. After five or ten years, when you are older, you are more likely to die thus the higher premium.
Waiver Of Premium Benefit
I usually recommend the waiver of premium benefit. I have seen so many people disabled for a short period of time that I am convinced that for the minimal cost it is worth it to add this rider.
If you should become disabled, anytime after 6 months of disability, the company will pay the premiums for you.
Because of the name of this rider many people misunderstand it’s function. For each $1,000 of life insurance you may add an accidental death benefit rider. Some companies allow only one unit for every $1000 of life insurance…some allow two.
Let us suppose you buy $100,000 20 year term insurance and you add one unit for each $1,000 of life insurance, and you died in an accident, the company would pay $200,000 to your beneficiary.
If you had bought two units of accidental death benefit, from a company which allows this, your beneficiary would receive $300,000 if you died in an accident.
Why Do People Buy 20 Year term Insurance?
People buy 20 year term insurance because they want to be assured that their families are secure if they should die prematurely. Business people also buy this policy to protect against the financial loss if a key person should die.
This is known as key employee life insurance. It can also be used to fund a buy sell agreement for a partnership or corporation.
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20 Year Term Life Insurance
The 20 year term life insurance policy can be effectively used in oh so many situations. We will look at some of them but first let us define what this policy is all about.
20 year term insurance has a level death benefit for the entire 20 year period. This death benefit can be paid in one lump sum or in income form.
The premiums, more often than not, are also level for the duration. Sometimes a life insurance carrier may elect to allow applicants to start the policy at a lower initial rate then increase it at a specific predetermined date in the future.
For example, the increase may take effect at the 5 year point or 10 year point. How could you intelligently put a 20 year term life insurance policy to use?
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20 Year Term Life Insurance – Do You Need It?
- Needs Of Married People With Children
If you are married and you have children the youngest of which, for example, is 5 years old this policy could cover all your immediate life coverage needs. This policy can determine that your present income will continue after your death.
It could be used to provide planned sums of money that would be used to pay college costs for your children even if you are not around to share the event with them. A portion of the proceeds of your 20 year term policy could provide funds to pay final expenses and burial costs.
- Needs Of Single Person With No Dependents
If you are single and have no dependents this policy can be used to put you six feet under without any financial burden to your relatives. Why would you use this policy? The answer is simple.
Although your need for life insurance is limited today, over the next 10 or 20 years you likely will have a need. As the price is so very low at the younger ages it may be wise to buy the policy now and when the time comes that you really need to own insurance you will already have it.
You should also keep in mind that as you get older there is a possibility that you could develop some illness that may cause the company to charge you extra or to disqualify from obtaining a policy.
- Needs Of Single People With Children
If you are single and have children your need will be much like a married person with dependents.
- The Surviving Spouses Needs
We tend more often than not to give much thought to the needs of the children in the event of the death of a parent. That is great but what of the needs of the surviving spouse. If the children are grown and on their own we still have each other.
What if one of us should die? What of the surviving spouse? Is his or her income sufficient to live on? Is the mortgage paid off or will the surviving spouse have to continue monthly payments?
Think on these things. The 20 year term policy could provide cash or income for your surviving spouse which would be used to take care of these things.
- The Business Persons Needs
Many business people have a good reason to buy 20 year term insurance. Business people tend to plan 1 year ahead, 5 years ahead, 10 years ahead and 20 years ahead.
They may use life insurance to fund buy sell agreements if a partner or shareholder should die. They could buy out the shares from the heirs of the deceases partner or shareholder. Both surviving family and surviving shareholders should be pleased in this case.
This policy is often used for key employee insurance. The death of a key person can devastate a business while they go about replacing this valued employee. The 20 year policy is a favorite for these business situations.