Term Life Insurance
What is Term Life Insurance?
Term life insurance, also known as pure life insurance is life insurance that guarantees payment of a stated death benefit during a specified term period. Once the term is over, dependent on the terms of coverage, the policyholder may have the option to either renew for another term, convert the policy to permanent coverage, or allow the policy to terminate.
Term life insurance is a great option for an individual, or family that would want to pass on a death benefit to a spouse or loved one in case of their passing. It is considered the most popular and straightforward form of life insurance purchased. This is because term life insurance is simple and easy to understand coverage, and offers an affordable clear benefit. Term life insurance offers pure death benefit protection only, without any cash value builds up within the policy. Because of this, term life insurance is often very affordable, particularly for those applicants who are younger and in good health at the time they apply for the coverage.
With term life insurance, coverage is purchased for a certain length of time, such as for 10 years, 15 years, 20 years, 25 years, and 30 years – and in some cases, even longer. There are also shorter-term policy options offered by many of the best life insurance carriers.
How Term Life Insurance Works
Term life policies have no value other than the guaranteed death benefit. There is no cash value element as is found in a whole life insurance product. The policy’s purpose is to give insurance to individuals against the loss of life. This cash benefit may be used by beneficiaries, to settle the policyholder’s healthcare and funeral costs, consumer debt, or mortgage debt, among other uses. Term life insurance is not typically used for estate planning or charitable-giving purposes. All premiums cover the cost of underwriting insurance. As a result, term life premiums are typically lower than permanent life insurance premiums.
Typically, when purchasing a level term life insurance policy, the amount of the premium will remain the same throughout the period specified that the policy is in force. Provided that the insured survives throughout the policy, and he or she wishes to remain covered by life insurance, they will need to re-qualify for a new policy at their then-current age and health status. At that time, the premium on a new life insurance policy may be quite a bit higher. In some cases, a term life insurance policy may have an option to convert the coverage over into a permanent life insurance plan.
Increasing and Decreasing Term Life Insurance
On some types of term life insurance, the death benefit will go down over time. These are known as decreasing term life insurance policies. (The premium, however, will usually remain the same). With a decreasing term policy, the policy ends when the death benefit reaches zero.
An individual may want to purchase a decreasing term life insurance policy to cover the balance of their unpaid mortgage. Each year, as the amount of the mortgage balance decreases, so does the amount of the insurance coverage – until eventually, both will end. There are also term policies where the death benefit increases over time. Often, this benefit will be purchased as a cost of living rider on the policy. A young parent may consider this type of policy as their coverage needs an increase.
Cost of Premiums
Term life policies are ideal for people who want significant coverage at low costs. Whole life customers pay more in premiums for less coverage but have the security of knowing they are protected for life. While many buyers favor the affordability of term life, paying premiums for an extended period, and having no benefit after the term’s expiration, is an unattractive feature. Upon renewal, term life insurance premiums increase with age, which may make new premiums cost-prohibitive. Renewal term life premiums may be more expensive than permanent life insurance premiums would have been at the issue of the original term life policy.
Making the right choice when it comes to your life insurance needs and deciding on the right type of policy for your family is an important decision. This decision may affect the rest of your life and the lives of your beneficiaries. We at Healthcare American are specialists in the insurance business and can help you in building the right insurance coverage’s for your individual needs. Give us a call, and we can help you build a solid insurance portfolio.