What is Term Life Insurance?
By definition term life insurance is simply a policy that provides a death benefit with a fixed rate of premiums for a limited period of time. Once the period of the term has expired you may then have the option to renew the policy for another period of time or simply let the policy end.
What Kinds of Term policies are available?
Nowadays the most popular term policies available are level term plans. These plans can be very affordable and typically offer guaranteed level premiums along with guaranteed level death benefits. Level periods range from 5 years, 10 years, 15 years, 20 years, 25 years and 30 years. There are still a few term policies offered on a 1 year renewable increasing term basis. Typically these policies start out lower in price than a level plan but quickly increase in premium each year as you get older. The 1 year renewable term plans are primarily for a very short coverage period.
Is Term Life Insurance the Lowest Cost Plan?
When comparing life insurance you will almost always find that term life is the cheapest plan of protection you can purchase. Term life will allow you to purchase the maximum of death benefit protection for the lowest out of pocket cost. With term life coverage you are purchasing pure death benefit protection. There is typically no cash value component to term life coverage.
How do I determine which plan of coverage?
Most people purchase term life insurance for a temporary need of protection. Some examples would be to provide protection to pay off your home mortgage, make sure the kids are protected until they are old enough to get out on their own. Protection for a spouse until you reach retirement or perhaps to pay off a business or personal loan. These are all temporary reasons that term life insurance can provide protection for.
Sometimes it makes sense to ladder your term life coverage with multiple policies. This allows you to cover different areas of need with the lowest out of pocket expense.
As an example, suppose you have 10 years left to pay off your mortgage with a balance remaining of $100,000 and your youngest child is 8 years old. You could purchase a $100,000 10 year level term policy to cover the mortgage and another policy for 15 years for an appropriate amount of protection which would protect your youngest child until they are 23 and perhaps out of college and on their own.
You may also want to have another separate policy to replace your income for your spouse until you retire. These are examples of laddering your policies to provide for a particular need.
What happens when my term period expires?
Most term policies will actually allow you to continue your coverage once your original term period expires. This renewable term feature will actually last to age 99 on most term policies. But, and this is a huge but, it is important to remember that if you choose a level term plan that expires after say 10 or 15 years your premiums will adjust higher based on your age.
The insurance company will renew your rates based on their current or guaranteed mortality rate tables. These rates will be much higher than your original level term.
As an example, let’s look at a current male age 45 who qualifies and locks in a 20 year guaranteed level rate at the best underwriting risk class with a popular life company. Based on $500,000 of protection is guaranteed rate would remain level at $599 for 20 years. At the end of 20 years the rate offered based on the guaranteed mortality cost at his current age would be $18,550. Needless to say, not a very attractive option.
And remember this rate is just for the 21st year. Beginning year 22 his rate would increase again and continue to increase each year. Now, does this mean the insurance carrier would charge him the guaranteed mortality cost at the end of his original term? Based on history probably not, but who knows what could occur 20 years down the road?
This is why it is vital to understand what your particular needs are and to have an experienced agent that can help guide you toward the correct policy for your particular situation.
Will companies writer term coverage if I have health conditions?
When dealing with an individual who may have a special risk such as diabetes, heart history or kidney disease the insurance carrier will typically offer any of their current policies including term coverage, universal life or whole life insurance.
In some instances depending on the medical history, occupation or hazardous activity the carrier could limit the death benefit amount or limit the plan of coverage to a more permanent plan of protection such as universal life or whole. That’s why it is imperative that if you are dealing with a special risk that you work with a knowledgeable and experienced insurance professional.
How do I find the best rates on term life coverage?
This is where we can help. We make it simple by shopping over 100 of the top life insurance carriers in the marketplace and providing you with a comparison of the best rates. Simply click on the display quotes link, call 1-888-393-9003 or email mike@specialriskterm.com
