Term Life Insurance
Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a predetermined death benefit if the insured person dies during a predetermined term. When the term expires, the policyholder has the option of renewing the policy for another term, converting the policy to permanent coverage, or allowing the term life insurance policy to expire.
When purchasing term life insurance, you must make two major decisions: the length of the term and the amount of coverage.
Term Life Insurance Policy Explained
The annual costs of a term life insurance policy remain the same year after year for the level term period of up to 20 years. If you die during the policy term, the insurer pays your beneficiaries the face value of the policy. Beneficiaries may use this cash benefit, which is typically not taxable, to pay off healthcare and funeral expenses, consumer debt, or mortgage debt, among other things. However, If you do not renew your policy after it has expired, it will expire. Unless you purchased a return of premium term life insurance policy, you will not receive any of the premiums paid into the policy.
Term life insurance doesn’t have a cash value like some permanent insurance policies and is cheaper as a result. Term life is usually the least expensive type of life insurance available because it provides a benefit for a limited time and only a death benefit.
Term life insurance is useful for:
- Covering the years until a child graduates from college to ensure that there is enough money for tuition and living expenses.
- Other specific debts that would be passed on to someone else are covered.
- Covering the years of a mortgage so that another borrower is not forced to sell the home.
Different Types of Term Life
You may learn about various types of term policies as you shop around and speak with companies or insurance agents. They all provide a specific benefit over a specific term, but with varying bells and whistles and costs. The best option for you will be determined by your unique circumstances.
Level Term Life Insurance
Also known as Level Premium, this is the most basic and common type of policy: your premium remains unchanged throughout the term.
Yearly Renewable Term
Also known as an Annual Renewable Term. This policy covers you for a year at a time, with the option to renew without a medical exam for the term’s duration – but at a higher cost each year. When compared to a level term policy, your premiums will be slightly lower at first, but you will pay more throughout a 10, 20, or 30-year term.
Decreasing term life insurance
The premiums on a decreasing term life insurance policy remain constant throughout the policy’s term, but the death benefit decreases steadily over time. Decreasing term policies are frequently used in conjunction with mortgages to match coverage with the declining principal of the home loan.
Return of premium
If you outlive the policy, a return of premium term life policy will refund your premiums. As you might expect, the refund feature raises the cost of the policy.
Benefits of Term Life Insurance
If you die while your term life insurance policy is active, your beneficiaries will receive a death benefit. It is also the least expensive type of life insurance.
How to choose a Term Life Insurance Provider
To begin your life insurance shopping journey, compare life insurance quotes. When selecting an insurer, you may be tempted to focus solely on price. However, the best term life insurance companies will provide benefits that provide flexibility at a reasonable price.
The best term life insurance companies are well-known in the industry, have a long track record, and have strong financial ratings. They also have a variety of policies to choose from, offer discounts to customers, and make it simple to get a quote.
Notable Term Life Insurance providers to choose from include: Guardian Life, Haven Life, Vantis Life, State Farm Life, New York Life, Pacific Life, and Protective Life.
Look for the following coverage features:
- Any Benefits to living? These enable you to access your own death benefit in the event of a terminal illness. You can put the money towards medical bills or anything else you want.
- Guaranteed term renewability: If you become critically ill near the end of the term of your policy, you’ll want to be able to renew without having to take another medical exam. Some companies offer this on a year-to-year basis – and while your rates will likely rise significantly, it may be worth it for your survivors.
- Is it possible to convert a term policy to a permanent policy? This provides you the choice of switching to a permanent insurance policy. However, there is usually a deadline for doing so, so make sure you are aware of your time frame for converting to a permanent policy.
- Can you change the face amount of the policy? Can you change your life insurance coverage amount if your needs change in the future? Normally, you can only make downward adjustments.
- Does the company underwrites its own policies? Some companies act as middlemen, selling policies from other insurers, which can raise your premiums. It can also add an extra layer if you want to change your policy – or if your family requires a payout in the future.
Another method for comparing insurance companies is to read online customer reviews. While these are unlikely to reveal much about a company’s financial stability, they can reveal how easy they are to work with and whether claims servicing is an issue.
What to Expect When Purchasing Term Life Insurance
When you’ve decided on a quote and are ready to purchase a policy, you’ll fill out an application. Your application answers will most likely be reviewed by the life insurance agent. You might be asked to sign a release, such as one for your medical records.
Once your application is submitted to the insurance company, you may be required to take a life insurance medical exam. Height, weight, blood pressure, blood and urine samples, and questions about your prescriptions and health are frequently required to verify the information on the application.
A life insurer may also request an Electrocardiography (EKG) or cognitive assessment, depending on your age and/or the amount of insurance requested.
The life insurance company will conduct its own investigation into you behind the scenes. This frequently includes:
- Using a prescription drug database to look up your current and previous prescriptions.
- Obtaining your medical records (if you signed a consent form). I’m retrieving your vehicle report.
- Obtaining a third-party verified financial statement for large amounts of life insurance, such as $5 million and up.
- Obtaining information from previous MIB Group applications for individual life and health insurance.
