What is term life insurance? This question comes up regularly from our clients so we thought we should take some time to answer it. Simply put, term life insurance is temporary life insurance coverage.
Life insurance, for the most part, comes in two basic flavors, temporary and permanent. However, within those two basic flavors come many customized toppings allowing you to design your plan to your liking.
How Term Life Insurance Works
As we mentioned earlier, term life insurance is temporary.
When you get a quote or purchase a term life plan, you have to pick a duration period that the plan will remain active through. The more common duration periods you can pick from are 10, 15, 20 or 30 years.
If you pick the 20 year plan, you have what is called a 20 Year Term Life Insurance plan. With this plan you will have coverage on your life for 20 years, as long as you continue to pay the premiums. If you outlive the term of 20 years, then the policy premiums will increase each year thereafter. Due to the annually increasing premiums, the year after your term period expires, most people elect to allow the policy to terminate once the duration period has ended.
Due to term life insurance being temporary and the fact that it does not generate any cash value, it is the most inexpensive form of life insurance; which means people frequently purchase much more coverage when they get a term policy. It is common for someone to purchase $500,000 or even $1 million dollars of term life insurance. If you are young and in good health then these large face value policies can still be less than $50 a month in premiums.
Term Life Insurance Strategy
A common strategy among families who purchase term life insurance on income earners is to purchase a term duration period that will last long enough to cover ones income until the children have graduated from college or have become self-sufficient. In this case 20 year plans are great to provide that temporary coverage while your dependents are still at home and need your support.
Term Life Insurance Variants
Annual Renewable Term:
This type of term life insurance renews every year and with each annual renewal, the policy premiums increase, making it more expensive each year that goes by.
Level Premium Term:
This type of term life insurance has level premiums and remain the same each year throughout the duration of the term. However, once you go beyond the term period purchased, the premiums increase each year you keep the policy active beyond the term duration period you purchased.
Return of Premium Term (ROP):
ROP term works just like a level premium term plan except that once you reach or complete the term duration period you purchased you get a return of the premium for all the money you put into the plan over the life of the policy.
For example, let’s say you bought a 10 year term life insurance plan and after that tenth year, you have put into that plan a total of $10,000 in premium. Once that tenth year is over the $10,000 you paid into the term life insurance plan over the 10 years is returned to you.
Simplified Issue Term:
These policies are usually less than $100,000 in face value and do not require a medical examination.
These policies are a great option for those that have been declined for life insurance in the past because of their health, but are more expensive and usually do not provide enough insurance coverage, and not having enough coverage can cause more pain and stress for your family. Even if you’ve been rejected in the past, we can help you find a company that is going to accept you for a traditional term insurance plan.
Is a Term Life Insurance Policy Right For You?
It’s vital when purchasing life insurance, that you get the best plan for your family’s needs. It can be difficult to decide but there are questions you can ask yourself to help determine if a term insurance plan is right for you.
First, how long will you need life insurance? Life insurance needs are going to vary based on the family. If your children are about to graduate and start earning a paycheck, you won’t need life insurance much longer. In that case, a term insurance plan could be an excellent option.
Second, will you want to reapply for coverage in the future? If you’re worried about losing life insurance, then a term insurance policy will not be the best option. These plans have an expiration date and you will lose protection at the end of your set term. In that case, a whole life insurance plan is a better option.
You’ll also need to look at your health and determine if you’re healthy enough to be approved for a term insurance policy. The insurance company will require you undergo a physical exam before they approve your application for coverage. If you’re in poor physical health, you may be declined for coverage. It’s important that your family has the protection that they need, regardless of your health. If you’ve been declined in the past, don’t assume that you can’t get qualify insurance at an affordable price.
Getting Affordable Life Insurance Coverage for a Term Plan
While many people do not purchase life insurance due to the fact that they think that it will be to costly, there are ways to help ensure that you get lower premiums.
Being a smoker places you at a higher risk with the insurance company, and in turn, you will be charged higher premium rates for that risk. So do yourself a favor and quit that bad habit not only for better insurance premium rates but for your health.
By living a healthier lifestyle, including watching your diet and exercising, you can improve your overall health which will in turn lead to better medical exam results. With better results, come lower insurance premiums.
Independent Insurance Agent
Independent agents work with numerous companies to be able to provide you with several quotes and plan options that will best fit your needs.
Term Life Insurance – What You Need To Know
Life insurance is a great way for you to be assured that spouse and dependents have the money that they need, regardless of what happens to you. Feel out the need information on our quote form located on this page today to start your life insurance purchase process!