Introduction of the Income Replacement Term Policy
What if there were a policy that would bear the burden of both your families immediate and long-term expenses in the event of a death of a family income provider and simultaneously reduce the out of pocket cost in today’s current financially difficult times. In comes the recent term life insurance introduction that provides for families to purchase a death benefit face amount that is paid out over a certain number of years 5,10,15.20,30 rather than in a lump sum at an evident discount over a straight lump sum benefit policy. Technically you could back your benefit out of what you could afford in premium.
By breaking it down a insured purchases a $300,000 Term Life Policy with level premiums over 20 years then at death the beneficiaries receive that benefit in a payout over 20 years resulting in a 15-30% savings in premium in comparison to the same face amount of coverage paid in a lump sum payout. Even more spectacular you can add a lump sum rider to the income replacement policy to cover big expenses like a mortgage if you so choose and convert the policy prior to age 75 to a universal life policy without additional underwriting. I think we will see a lot of consumers reviewing this plan and purchasing a lump sum rider for half the total face amount and taking a payout on the second half to save the premium. Should the spouse also pass away the contingent beneficiaries will receive the remaining payout on the policy.
Example:
Male 39 Years Standard Health $600,000 Lump Sum Benefit
Premium $798.00Annual / $69.83 Mo
Same Male 39 Years Standard Health $300,000 20 Year Payout
Plus a $300,000 Lump Sum Rider
Premium $638.40 Annual / $55.86Mo
This could equate to a savings of approximately $159.60 annually for essentially the same coverage. Keep in mind that you choose if you want to add a rider and you choose the payout period. Shorter payouts will result in smaller savings and also be aware that tax laws will affect a portion of that payout taken as an income stream. If you consider using one of these you may want to consult a tax attorney to clarify the taxed portion taken on amount you select as income. Also to be noted there are limitations on the rider face amount in relation to the value to the payout portion if you choose to add one. This income replacement insurance can definitely be of value when determining cost, and a families protection needs since many that have life insurance rarely have enough and of course the possibility that the benefit will not go as far as expected.
