Term life insurance a form of life insurance that guarantees the policyholder’s beneficiaries payment of a death benefit during the specified term. Unlike whole life insurance where the policy stays in place forever, once the set term expires, the policyholder has three choices. They can either renew their policy for another term, allow the policy to lapse or to convert to permanent coverage.
What Should I Know About Term Life Insurance?
There are three factors that impact term life premiums. These include the applicant’s health, their age and their life expectancy. Once the policy is intact, if the policyholder should die within the specified policy term, the beneficiaries are guaranteed payment. When this happens, the recipients receive their death benefits which is the face value of the term life policy. Should the term life policy expire before the policyholder passes away and is not renewed, there is no payout. Policyholders usually have the option to renew a term policy at its expiration. However, their premiums will change upon renewal.
Because term life insurance offers a specific benefit for a set amount of time, it is often the least costly life insurance available. For example, a healthy 30-year old non-smoker can usually be approved for a 20-year policy with a $250,000 face value for about $25 per month. This can be a fantastic option for people who are concerned with the price of whole life insurance. Whole life insurance premiums are often closer to $250 per month. However, the majority of term life insurance policies expire before paying out a death benefit. This means that the risk to the insurance company is lower than those of a permanent life insurance policy.
Who Benefits the Most from Term Life Insurance?
Term life insurance is a popular and one of the most attractive life insurance options for young couples that are starting a family. This is because term life insurance allows parents to obtain a substantial amount of coverage for reasonably low costs. Should something happen to one of the parents, the living spouse can use the insurance money to replace the lost income. Therefore, providing the family with the grace of little or no additional financial stress. Term life insurance is well-suited for people who, for a temporary amount of time need an additional amount of life insurance. Often in these cases, after a certain point, the policyholder has reason to believe that their survivors will no longer need additional death benefits.
Are There Different Kinds of Term Life Insurance?
Level Term, or Level-Premium Life Insurance
Level term or level-premium life insurance policies provide the policyholder with coverage for a predetermined period which can range anywhere from 10-30 years. When it comes to this kind of life insurance, both the death benefit and premium are pre-determined. This is because actuaries must account for the continuously growing costs of insurance over the life of the policy. Thus, the premiums are generally higher than yearly renewable term life insurance.
Yearly Renewable Term (YRT) Life Insurance
Yearly renewable term life (also known as YRT) insurance policies do not have a specified term; this is because they are renewable on a yearly basis. This renewal is done without having to provide evidence of insurability every time. When it comes to annual renewable term life insurance, early, premiums tend to be quite low. That said, as the insured ages, premiums increase. Although there is no specified term, premiums do often increase as the policyholder’s age rises. Because of this many people find this option unattractive.
Decreasing Term Life Insurance Policies
Decreasing term policies are quite different than the two described above. These have a death benefit amount which declines a little bit each year. This decline follows a schedule which the policyholder has. The policyholder continues to pay a fixed, level premium for the duration of the policy’s lifespan. This type of term life insurance is often used in combination with a mortgage and is set to line up with the declining principal of the home loan.
What Should I Know about Term Life Premiums?
It doesn’t matter what kind of life insurance you are thinking about getting; there are three factors that will determine your policy premium. These are your sex, your age, and your health. From that point, the factors that are taken into consideration vary. They will depend on the face amount of your policy. This means that factors like family history, your occupation if you are a smoker, your driving record, and even a medical exam can all impact your policy.
Generally, life insurance premiums remain the same price throughout the contract or term. Then, once it is time to renew the policy the premium costs increase. This is because when you renew every 10 or 20 years, your life expectancy will have changed. In other words, you will no longer be a 20-year-old non-smoker, you could be a 30 or 40-year-old non-smoker. Additionally, it is likely that 10 or 20 years after initially signing your insurance policy you will have experienced some changes to your health. After all, a lot can change during the lifespan of a life insurance term.
It is important that life insurance policyholders are aware that things like the financials of the insurance company, and interest rates can have an impact on the cost of premiums. Generally, life insurance companies provide better rates at what they call “breakpoint” coverage. These are levels of $100,000, $250,000, $500,000, and $1,000,000.
What is Convertible Term Life Insurance?
A lot of people who are not familiar with life insurance are unaware of what convertible term life insurance is. Convertible term life insurance means that the policy includes a conversion rider. This conversion rider guarantees the policyholder the right to convert their term life insurance policy into a permanent life insurance policy. The best part is that policyholders do this without having to prove insurability or going through the underwriting process. The point of a conversion rider is to provide policyholders with the ability to convert to any permanent policy that the insurance company offers.
The cost of premiums will increase since the price of permanent life insurance compared to term is a lot more. However, the advantage is the guaranteed approval without having to go through a medical exam. This means that medical conditions that develop during the term life period cannot impact the cost of premiums onward. That said if you want to add more riders to the new whole term policy. If you wish to add additional riders the insurance company may require that you go through the underwriting process.
Making the decision of getting either a permanent policy, like whole life or universal life or term life coverage is personal. It very much depends on the situation and needs of the policyholder and their family. Things like your financial situation, if you have kids, your goals and spouses income all need thought of. Term life insurance policies are wonderful for people who want coverage at a low cost. Whereas, whole life customers pay more in premiums for less coverage. That said, they can relax knowing that they don’t have to worry about their life insurance.
While many favor the affordability of term life insurance, many are quick to point out that there also negative aspects. For many, paying premiums for years, yet receiving no death benefit after the term’s expiration, is an unattractive feature. Once renewed, term life insurance premiums do not only increase with age.
There really is no one-size-fits-all answer to what kind of life insurance is best. It comes down to what you and your family need and how you can best attain it. Let us at CS Insured in San Diego, help you find the best kind of life insurance and give you and your family the financial security and confidence that you deserve.