It is easy to understand, offers large amounts of customization, and gives you the most amount of coverage for your money of any type of life insurance policy on the market.
Term life insurance did not always exist and has only been available as consumer needs have changed over time. There are many companies that offer term life insurance, and some of the best companies for term life insurance don’t even offer another type of product.
Is It Right For You?
Let’s first look at the basics of why someone might need a term life insurance policy.
They all have different life insurance needs, and the term can only solve specific needs compared to other types of life insurance.
Here are some of the most basic attributes of term life insurance:
- The death benefit that stays level
- Premiums that stay level
- It’s temporary
- No accumulation of cash value
- Availability for additional clauses
- Conversion opportunities
Due to these attributes, term life insurance does not apply to all situations, mainly due to the limited time frame that it can cover and the lack of growth in cash value.
If you want permanent life insurance, or if you have a reason to access cash later in the policy years, a term product is not the right solution for you.
Has a death benefit that stays level
One of the main factors in determining if the term is right for you is measuring how long you will need to have coverage. As an example, many people protect themselves by the amount of their mortgage while their mortgage is amortized.
Initially, a term life insurance policy could pay for your dependents’ home so they don’t have to worry about moving, and as each year passes, the difference in the original and current home principal loan is now additional funds. for the family to use at their discretion.
During the term of the policy, the death benefit will not increase or decrease. This has advantages and disadvantages.
It is good to know that the amount of your coverage will not decrease, but consider the value of the policy in 5, 10, 20, or even 30 years. The time value of money decreases due to inflation, and needs can also increase or decrease.
You can increase coverage just by applying for coverage, and it will be based on your age at that time and your health at that time.
Premiums are level for the duration of the specified term
Knowing exactly what you will pay during the life of the policy is attractive to everyone, provided you understand that your policy premiums will increase when the policy expires.
Premiums are the only level for the time you choose, and if you want to keep your policy you will have to pay a higher premium.
Premiums increase dramatically after the end of the term, usually well beyond what is affordable, so renewal is probably meaningless.
One thing to keep in mind is what your premium payments will be when determining how long you will want. While it’s nice to have peace of mind that there are no premium increases for a specific duration, just know that you will pay more for longer durations.
In other words, a 20-year term will cost more than a 10-year term, and a 30-year term will be more than both.
The cheapest would be a renewable annual term, although they are not suitable for many.
Coverage is temporary
Term life insurance ends after a certain number of years. It is not permanent. This distinction is what allows the premiums to be so small compared to whole life insurance or universal life insurance products. Think of it this way: term only means temporary.
One of the keys to choosing the right type of life insurance is to match the need with the policy, so if you are looking for a policy that will pay regardless of how old you are when you die, this is not the option.
Term life insurance should only be used for needs that have a defined purpose, such as debt obligations, income replacement during work years, or financial assistance for minors, for example.
Younger people are much more likely to need a term than seniors simply based on human capital alone, as well as the probability of living as many more years.
NO CASH GROWTH
Different types of life insurance have different benefits, but cash value is not one of them for a term policy.
Premiums paid for term insurance are strictly intended to offset the risks related to death over a finite period of time, the additional clauses to the policy, or the required fees.
There are no other components, no dividends, and access to premiums paid unless the life insurance policy is a type of premium refund.
The additional clauses are like additional options when you buy a car. They are available, but not required, and most often must be purchased at the time of the original sale.
The additional clauses essentially increase the benefits of what your term life insurance policy can provide, some are free and others cost more.
Not all Additional Clauses from each company are the same, so make sure you know what additional clauses are available when you apply and for how much.
One, for example, that is very popular is the premium waiver clause, as it would continue to make your premium payments for you if you are disabled for 6 months or more, while you are disabled.
The conversion privileges allow someone to take your insurance policy term life and make it partially or in whole to a different type of policy, such as insurance indexed universal life, universal life insurance or whole life insurance.
For a term life insurance policy to have this option, the issuing company must have a permanent product to convert to, so keep this in mind when requesting certain companies that only offer term coverage at this time.
Also, the conversion option generally has an expiration, such as 10 years on the life insurance policy, where you can convert without a new health test.
In other words, you can make conversions regardless of any changes in your health, as long as you can maintain the new premiums that reflect the type of coverage and your current age.
How much does term life insurance cost?
A common consumer question is how much can they expect to pay, but it is not as simple as looking at the prices of products in retail.
There are many factors that go into obtaining an accurate quote, and even then, the rate is not final until the policy has been underwritten and issued.
In addition to underwriting, there are basic factors that influence the cost of a policy, some of which are under your control and others that are not.
Here are some of those factors:
- Family history
- Driving record
- Dangerous activities
- Payment method
Life insurance is all about statistics and the law of large numbers for the insurance company, and the lower the risk you pose, the lower the premium you will pay.
Consequently, the younger you are, the longer you are expected to live, so naturally, you will have less risk. The more health risks you have, the more likely you are not.
This, in the eyes of the operator, makes it unique, so the premium you can expect is a detailed account of all these factors together.
Certain things are out of control, such as age, family history, and to some extent, health.
Although it may be a perfect state of health, if your immediate family has problems with heart disease, diabetes, or cancer, you may lose any chance of a discount rate before you start.
Likewise, certain health concerns you may have had since the day you were born can make it more difficult for you to get normal coverage.
Factors like occupation, dangerous activities, and your driving record may seem a little extra to consider for someone’s life insurance policy, but each presents its own risk. If you wash windows in skyscrapers, you are a little more at risk than an employee of a local grocery store.
Similarly, if you have a clean driving record compared to someone who has had a DUI and two speeding tickets in the past year, it poses a much lesser threat to the carrier to pay an early claim.
All of these things are only responsible for your grade or health class.
Once this is established, the size of the life insurance policy, the duration you choose, and the company you buy it from will be the final determining factors of what you will pay.
You have the option to pay your policy monthly, quarterly, semi-annually, and annually, with the annual option being the cheapest, giving those who take it around 5-7% of a discount on the price.
High-Risk Term Life Insurance
If you have circumstances that make life insurance more difficult to obtain, there are many companies that write higher-risk term life insurance policies that you may want to consider.
There are a couple of different ways that a life insurance policy can become a high risk:
- Dangerous activities
- Driving offenses
- Healthy conditions
As mentioned earlier, these types of things not only make it a little more difficult to obtain coverage by limiting the companies that will offer you the best life insurance rates but will also pay higher premiums based on the level of risk you receive from the insurer
While each type is different, they all use the same scale from one company to another when it comes to ratings.
“Tables” are added or an additional premium is added in percentage points of the base premium, and up to 10 tables can be added. Each table can represent 25%.
A high-risk occupation is one of the most common reasons an applicant may see an increase in fees, although it is not as severe as the health conditions.
Jobs that require the use of safety equipment, highly specialized machinery, or some form of the possibility of injury or death may be susceptible.
Think of underwater deep-sea rescue hunters sorting sunken ships, pilots, police and firefighters, and skyscraper window cleaners.
They are not typical careers.
Occupational price increases are generally not with aggregate tables, but with flat extras. A fixed additional fee is an additional premium added per thousand for a predetermined period of time or until the occupation is no longer in force.
So, for example, if a person needs $ 100,000 coverage and an additional $ 1.50 flat rate is added, it’s an additional $ 150 per year for coverage.
Although it represents something exciting, dangerous activities could also mean higher life insurance costs. Like occupational risks, these will be evaluated with additional fixed rates.
People who enjoy things like scuba diving, skydiving, race cars, recreational flights, helicopter skiing, and other adrenaline-like activities are the ones who fall for this subscription area.
It can be anything from a hang glider to a motorcyclist and still be included, depending on factors such as how often you do it, your level of experience or training, and whether or not you wear protective gear such as helmets, when necessary.
BAD OR POOR DRIVING LOG
Yes, just as it affects your auto insurance rates, it also affects your life insurance rates. While a simple moving violation here and there will do nothing, the bigger events will.
A DUI / DWI can increase your rates, and several life insurance companies may reject it within a certain period of time. A speeding ticket is not a concern unless there are quite a few, and going through a stop sign won’t put you at high risk.
A general rule of thumb with driving records and life insurance is to look at the number of counts over a period of time, the severity, and whether or not alcohol or drugs were involved in the violation.
If you have had a license suspension or revocation, expect a possible premium increase.
Having any type of health deterioration in the past could have an impact on rates, although not always.
There are some questions you can ask yourself right away to find out whether or not you might fall into a high-risk category because of your health:
Have you been required to see a doctor or specialist, or have you been admitted to the hospital for any reason in the last 10 years?
Have you required any surgery in the last 10 years?
Have you been prescribed any medications in the last 10 years?
These 3 simple questions will probably catch 99% of those who will fall into the high-risk profile determined by insurance companies.
Now, just because you answered “Yes” to one of these questions does not mean that you are at absolutely high risk, it just means that you will probably have to answer additional questions about why, when, and what were the end results of everything that happened.
People who have high blood pressure, high cholesterol, or had simple outpatient surgeries are great examples of those who might answer yes but still be able to get some of the highest rates.
TERM LIFE INSURANCE THROUGH WORK: THINGS TO KNOW
It is not uncommon for us to have discussions regarding applicants who already have, or are currently applying for, a term life insurance policy through their work. While this is fine, in some situations it is not your best bet.
Life insurance through work, especially term, has its limitations.
Most term-of-work life insurance policies are based on a simplified or even guaranteed problem, meaning there are no limited medical questions or no health questions to answer.
While this sounds great, consider your cost per thousand for your total need for death benefits, as these types will cost more per thousand compared to policies fully underwritten through a private insurance company.
Something else to consider is the portability of the life insurance policy.
If you leave, are fired, or retire, can you keep your policy exactly as it is? In many cases, the answer is no. If you get a permanent type of policy through work, you are much more likely to have the option of taking it with you and simply modifying your payroll deduction payment to self-pay.
If your employer is paying the premium, and payroll is not deducted, then you should always have the best coverage possible.
There is no reason not to. Just consider covering the difference between your need and what you already have with supplemental private insurance.
SOME QUICK TIPS TO SAVE ON LIFE TERM INSURANCE
Look for price discounts
In life insurance, such as buying from supermarket chains, there are price discounts to buy more coverage.
Typical prices are $ 25,000, $ 50,000, $ 100,000, $ 250,000, $ 500,000, and $ 1,000,000 . In many cases, it is cheaper to round to the nearest price than to buy below it.
For example, a $ 225,000 life insurance policy could actually be more expensive than increasing to $ 250,000 because there is more competition at that level.
Pay annually if you can
Most insurance companies will offer a small discount if you pay annually.
The percentage can only be 3-8%, but for larger premiums, this can add up quickly, especially during a 10 or 20-year term life insurance policy.
Some companies allow payment through credit cards, so you may have to ask for some additional percentage points there, or even points when applying.
Stair Life Insurance Policies
It is okay to buy more than one insurance policy.
If your situation warrants it, it could save you a long-term premium by having life insurance policies for different amounts and durations. Escalating simply means taking advantage of the flexibility of different types or different lengths of life insurance policies to handle more than one issue.
Having a 10-year term life insurance policy to replace your family’s income, with a 30-year term life insurance policy to cover your mortgage is a great example.
Ask about reconsiderations
If you don’t get the rating you wanted, but don’t seem to have a choice, you may be able to request reconsideration from the issuer. What this means is that, as much as annually, you can contact your life insurance provider to update your health and ask them to reconsider your premium.
This is great for people who lost weight but were rated because of their BMI, people who smoked when they applied but quit, and anyone with a condition they’ve forgotten had a successful transplant or any amount of improvements related to health.
Even if the operator does not decrease his premium, there is no harm in asking why it will never increase; it can only go down or stay the same.