Term Life Insurance: Options and Advantages

Term life insurance is the simplest of all insurances. The insured selects a coverage amount and defines for how many years the policy will be maintained. This time can range from one year, up to 30 years. If an insured chooses a term of 5 years, when it is fulfilled, it may be necessary to renew the policy, change it, or simply let it expire.

This type of insurance is very popular in cases where you need to have protection for a certain time; for example, when your children are young, while you are paying the mortgage on your house, or until you have your own savings that allow you to leave your family “comfortable” without the need for insurance. So when the need no longer exists, you can choose not to renew insurance, thus saving your premium payments.

One of its great advantages is usually the price since you are buying the insurance for a specific period of time, the premiums are usually exactly the amount that the insurer needs to cover the cost of your policy and there are no extra charges for supply for the future price of insurance.

Although it also has a great disadvantage and that is that many times the need for insurance protection remains indefinitely, even if it has only been taken for a few years. For example, if you purchased insurance for 20 years, because you thought that at that time you would already have the house paid or your children would no longer be your responsibility, but you realize that at the time your insurance is going to expire, none of the both have happened (since she had to refinance her house several times or boys were born later than planned and they are still at home …). It could happen to you that after 20 years when you want to renew the policy, the cost of the new insurance is very expensive or you have become ill and are not “insurable” by then.

For the rest, you can literally have several simultaneous insurance policies, so that when one expires, you have another and so on. The most common terms of term life insurance are:

  • One year, renewable every year
  • 5 years, renewable
  • At 10 years
  • At 15 years
  • At 20 years
  • At 30 years
  • Up to a specific age (65 years, 70 years, etc.)

 

The popularity of each type of term insurance varies according to the time. A few years ago the most popular policy was renewable one year, but it is not anymore. Today the most popular policy is the 20-year-old. However, any of these policies is extremely difficult and would be very expensive to obtain for people over the age of 80.

There are other very common term policies such as level policies, that is, those in which the insured amount does not vary over time. However, sometimes the insured prefer to have a greater amount of insurance or protection in the first years and to decrease the amount of coverage over the years; The latter is known as declining term policies because they believe that their own financial means may cover part of the insurance needs that they cannot cover at the beginning of their professional life.

These policies could begin, for example, with a coverage amount of 100,000 dollars and in year 5 go down to 90,000, in year 10 go down to 80,000 and thus continue to decrease every so many year of validity. The price of the same may be lower than that of the level term policies.

Renewable or not?

Another important value of term policies is that they can be renewed ( renewable ). If a policy were non-renewable, upon expiration, the insured would have to demonstrate that they are still eligible for new insurance and most likely should undergo a new medical examination. If the policy is renewable, the insured saves himself the medical examination and the possibility that his health has deteriorated and he is no longer eligible for the same insurance that he had before, some years ago when he initially obtained the insurance.

The possibility of renewal should not be confused with the pricing of the premium. When it is guaranteed that a policy is renewable, it is said that there is no need to do a medical examination again, but this does not generally ensure that the premium continues to cost the same since ultimately, the insured he has aged and by the law of life he is increasingly prone to die; therefore, the insurer’s risk increases over the years, as does the amount of the policy.

In reality, the price of the policy is based on the insured’s age, gender, and state of health, as well as the risk the insurer takes with said policy and the time of the insurance. For example, a 25-year-old woman will pay for a less expensive policy than a 65-year-old woman, even though both are apparently in good health. If you decide on a 5-year (renewable) insurance, it will cost less than if you choose a 30-year term policy.

When in 5 years the woman is no longer 25 but 30 years old, she will pay the premium corresponding to a woman of 30 years, even if the policy is renewable.

Another option for the insured when the term ends is to convert that policy to term, which ends in x years of issuance (in the example, 5 years) in another type of insurance, such as permanent ones.

In this case of conversion, the applicable premium will be determined by the age of the insured, and because it is a conversion, it will not be necessary to carry out new medical examinations.

What is a premium refund policy?

Hundreds of thousands of people find it necessary to have insurance, even if they feel unhappy about having to pay year after year for insurance that expires from time to time and that no one wishes they had to use because then it would mean that the insured is already dead.

For this reason, the insurance industry has devised a new type of insurance in which it is guaranteed that if the term of the insurance passes and they have not had to use it (since the insured is still alive and their beneficiaries have not received any compensation), the insurance company will return the money paid in annual or monthly premiums; Of course, this guarantee will have a substantial surcharge on the life insurance premium.

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