Can you explain indererminate premium life insurance?
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Asked July 9, 2012
When you buy life insurance, there are a few options of how you can pay the premiums, and each option will affect what premiums you pay. One example is a fixed rate premium, where your premiums remain the same for the duration of the policy. Another option is an indeterminate premium, which provides you with two rates, an actual rate and a maximum rate.
At first, the premiums you pay on an indeterminate premium life insurance policy will typically be quite low and fixed for a period of time such as one or two years. This is the actual rate, and it is a variable rate. The second rate is a maximum premium rate for the duration of the policy, and even though the actual rate will vary over time, it will never be higher than this maximum listed rate.
The initial low premiums for an indeterminate premium life insurance policy are designed to pay the costs of policy maintenance, current market interest rates, and your personal demographics such as health, age, and where you live. This rate is the bare minimum rate, and adds little or nothing to the cash value of a whole life insurance policy. After the initial low rate term expires, your premiums will increase based on market conditions and other factors, but it will never be higher than the guaranteed maximum rate defined in the policy.
An indeterminate premium life insurance policy could be a wise idea if you are on a limited budget but expect your situation to change. Similarly, taking out this type of policy while you are young will allow you to take advantage of the low rates based on your age without a great deal of cost, and with the assumption that your financial situation will improve over time.
Answered July 9, 2012 by Anonymous