Term Life Insurance

“Fun is like life insurance, the older you get the more it costs.” – Kin Hubbard

Term life insurance

Term life insurance is typically the least expensive way to purchase a substantial life insurance policy with fixed payments. These policies are limited to a specific “term length” (also called the “relevant term”). This term can be anywhere from 1, 5, 10, 15, 20, 25, or 30 years and will impact your monthly premium. After that period expires, the client must decide if they’d like to forgo coverage, or obtain new coverage which will entail a new rate and coverage conditions.

The term of coverage can be anywhere from 1, 10, 15, 20, or even 30 years, and the length of the term will impact your monthly premium.

How Can Term Life Insurance Help My Family After I’m Gone?

Term life insurance is the most popular type of life insurance, and benefits can be used for a wide variety of expenses to support your loved ones.

Here are some ways your family will be able to use the benefits of your term life insurance:

  • Pay for Your Funeral Expenses

    Funeral costs have been steadily rising for years, so it is important to make sure you have set aside the funds to cover the expenses. With an insurance policy to cover these costs, your bereaved family won’t suffer the financial burden of finding funds for your funeral. Having a policy cover the costs will also provide a peace of mind, because the costs will be paid directly, instead of your family having to deal with invoices and bills from the funeral home.

  • Pay off your mortgage, credit cards, loans, and other debt

    Your death does not automatically erase your acquired debt. Your family will become responsible for these debts, but a term life policy can take the pressure off your loved ones.

    If you would like to know that the policy benefits will help your family stay in their home or keep their car, you can choose a policy that decreases in payout value to matching the decreasing amount of your mortgage or car loan.

  • Financial Independence

    You can name your child and/or their guardian as the policy owner of your term life insurance, to provide financial security to your spouse and descendants.

  • Sustaining a Comfortable Life

    Benefits can be used for a wide range of expenses, including college tuition, renovations and home additions, or any other purpose they desire. A modest term life policy can help your surviving loved ones to be more comfortable.

  • Create a Charitable Donation

    Term life insurance policies can also be a good way to benefit your favorite charity or nonprofit organization. Simply name the organization of your choice as the beneficiary of the policy and they will receive your gift and your lasting impact once you are gone.

 

Renewal of Term Life Insurance

 

Annual Renewable Term and Proof of Insurability

As with any term life insurance policy, no benefit is paid after the end of the term. Premiums for shorter term plans (like one year), can be quite low because the expected probability of the insured dying in that one year is very low.

However, this doesn’t mean purchasing shorter term plans is the best option. One of the main downsides to a one-year renewable policy—or any term limited policy for that matter—is the requirement for proof of insurability in order to renew. For instance, if you acquire a terminal illness during the insured term, but do not actually die within that year, you would likely be uninsurable for the next year because of that terminal illness. After the expiration of the initial term you would likely be unable to renew the policy or even purchase a new one.

Guaranteed Renewal and ART Policies

Some policies offer a feature called guaranteed renewal, which allows the insured to renew for another term without proof of insurability.

With guaranteed renewal, the one-year term premium is slightly higher than for a single year’s term coverage, but the chances of the benefit being paid are much higher, because you are guaranteed the option to renew.

Guaranteed renewal is the case with commonly purchased annual renewable term (ART) policies. In this type of policy, the premium is paid for one year of coverage, but the policy owner is guaranteed the ability to continue coverage each year for a given period of years. This period can vary from 10 to 30 years, or occasionally until age 95, regardless of number of years until that age.

One downside to ART policies is that as the insured person ages, the premiums increase with each renewal period. Eventually this becomes not financially viable, as the rates for the renewed policy would eventually exceed the cost of a permanent policy.

Level Term Life Insurance

A more common type of term life insurance is level term life insurance, where the premium you pay each year is guaranteed to be the same during the term of the policy.

While the premium amount will always stay the same throughout the term of the policy, that amount will be higher, the longer the term of your policy is. This is because the later years of the policy, which are more expensive to insure, are averaged into the premium amount. This option allows you to spread out the higher cost of later-year life insurance.

Most level term policies include a renewal option, but the renewal may or may not be guaranteed. Just as with annual renewable term insurance policies, when renewal is not guaranteed, poor health would prevent the individual from being able to provide proof of insurability, and therefore would prevent the renewal of the policy. You should review the contract to determine whether evidence of insurability will be required to renew the policy.

Converting from Term to Universal and Whole Life Policies

Most term life policies include an option to convert the term life policy to a Universal Life or Whole Life policy. This option can be useful to a person who is diagnosed with a condition that would make it difficult to qualify for a new term policy. The new Universal or Whole Life policy is issued at the rate class of the original term policy.

There may be a limit on when you are allowed to convert your policy. For example, a plan may be convertible only for 10 years, or up to age seventy. If this is the case, once that limit passes, the plan could only remain as a fixed term plan. It is important to look into the details about your right to convert your policy.

Let Policy Wizards Help

We know that buying Life insurance can feel daunting, and we want you to choose the policy that truly fits your needs. Let us help you navigate all of the details when it comes to purchasing, renewing, and converting Term Life Insurance. Contact a Wizard now!