Information You Should Want
Want to know more about term life insurance? Term insurance is life insurance in it’s simplest form. These policies stay in force for a specific number of years, for example, 5 years 10 years etc.
At the end of these periods of time that is the end of the policy. If you had died within the 5 year period, for example, your beneficiary would have received the full face value of the policy.
If you should die after the 5 years have expired then there is nothing payable to your beneficiary. Most life insurance companies include a clause in the policy which allows you to convert your term policy to a permanent policy within a specific period of time. The company may say, for example, that you must convert within 4 years.
The reason that you will find this clause particularly attractive is that somewhere along the line you may find that you have developed some type of ailment that would prevent you from purchasing additional life insurance.
If you have a term life insurance policy which includes a conversion privilege and your policy is still within the period allowed you may convert it to a permanent policy, even though you may not be able to qualify under normal conditions.
Term Life Insurance Policies
Let us take a look at some of the term life insurance policies available and how they would work for you as well as some of the more popular riders.
- Yearly Renewable Term
- Decreasing Term
- 5 Year Level Term
- 10 Year Level Term
- 15 Year Level Term
- 20 Year Level Term
- 25 Year Level Term
- 30 Year Level Term
- Term To ages 65, 80 or 90
- Waiver Of Premium
- Accidental Death Benefit
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- Yearly Renewable Term
One of the least costly life insurance policies is the yearly renewable term policy. The interesting thing about this policy is that even though it may start out that way, being the least expensive, it can eventually become quite expensive…that is if you keep it long enough.
The premium starts out very low, as stated before, but it increases each year. You may say that it shouldn’t but if you think about it this is insurance in close to it’s purest form. Each year the cost of life insurance increases simply because you are older.
As you get older you are more likely to develop some ailment that could end up causing your death. What the life insurance company is doing here is charging you a premium based on your attained age.
You can therefore see that the cost of your yearly renewable term life insurance policy can eventually become prohibitive. The death benefit remains level throughout the life of the policy.
This policy would be purchased if you have a fairly short term need for life insurance.
- Decreasing Term
One of the most bought life insurance policies is the decreasing term life insurance policy. One reason it is so well liked is that people use this policy for mortgage protection. I believe it was designed with this in mind.
When most people buy a house they have a mortgage. They put down a small portion of the cost of the house and borrow the balance from a bank or mortgage company.
If this person should die before this money is paid off the survivors will have to pay the bank or mortgage company. One way to eliminate this problem is to buy a decreasing term life insurance policy in the amount owed. Whenever the homeowner dies the balance owed is paid off.
The face amount of the decreasing term life insurance policy decreases, usually, with the amount owed on the mortgage. The premium remains level throughout.
- 5 Year Term
5 year term insurance was designed for a person who has a short term need for life insurance or for one who, even though s/he has a long term need, cannot afford to buy the longer term life insurance policies at that time. They usually have the option of converting their policy to a permanent policy within a specified period of time.
Unlike the yearly renewable term, which is usually bought for similar reasons, the premiums remain level for the duration. The death Benefit also remains level throughout.
- 10 Year Term
Another well liked policy is the 10 year term insurance policy. Although the reasons are similar to some extent to those for buying the 5 year term policy sometimes this policy fits very well into a family protection situation.
Let us suppose you have teenagers and you just desire to see them through the high school and college years. Let us say the youngest is age 15 and you expect that s/he will graduate before age 25. The 10 year term policy may fit that need.
If you have a spouse that you need to protect, however, 10 years may be too short a period of time. You may need to look to a longer term policy.
The death benefit remains level for the entire 10 years and so does the premium.
- 15 Year Term
The longer the period you are allowed to keep a term policy the more costly it is. The 15 year term insurance policy would therefore have a premium that is a bit higher than that of those previously discussed. For some people the 15 year term life insurance policy fits their needs perfectly.
You can figure that, for example, if your youngest child is age 10 and you think that this particular child will graduate college before age 25 then you need life insurance coverage for 15 years. I am, of course, assuming that you have other life insurance to protect your spouse in the event of you death.
The same type of conversion privilege applies similar to the 5 or 10 year term. The privilege may be limited to 12 years for example. This is a level premium policy and the death benefit is level as well.
- 20 Year Term
One of the most loved and, as a result, most purchased life insurance policies is the 20 year level term insurance policy. When the average person thinks of life insurance for family protection the 20 year term life insurance policy is usually the one that comes to mind. You just got married or intend doing so in the near future you will likely buy a 20 year term policy.
If you are already married and have very young children you could use a 20 year term life insurance policy. Business people have a tendency to think of this one as well. They need life insurance to fund buy sell agreements in the event of the death of a partner or shareholder.
Life insurance is the least costly way to go and the 20 year policy is usually a good fit. They also need life insurance for key man insurance or key employee life insurance .
This policy has a guaranteed level death benefit and a guaranteed level premium as well.
- 25 Year Term
The same people that use the 20 year term policy would also use the 25 year term. They just figure that an extra 5 years of life insurance coverage won’t hurt. In fact, they feel safer with the additional 5 years.
The policy has a level premium as well as a level death benefit.
- 30 Year Term
Some people buy life insurance a little later in life, let us say in their late thirties or in their forties. May be they want to protect a spouse if they should die prematurely or they want to provide a fund that would pay for the college costs of a grandchild.
A 30 year term policy could be a good fit. Even though the premiums are a little more costly than the 20 year or the 25 year term policies they don’t mind because people at this age are usually able to afford a little more than a person in their twenties.
The 30 year term life insurance policy has a level death benefit as well as level premiums. Some companies may begin the policy with a little lower premium, let it stay level for 5 or 10 years then increase it. Some policies have an increased cost every 10 years.
- Term Life Insurance To Age 65, Age 80 Or Age 90
Sometimes we forget that people in their latter years may have a need for life insurance. Some life insurance companies have created policies that would fit their needs.
Some have level premiums but, more often than not, these policies have premiums that increase as you get older. The increase may take place every 5 years or every 10 years. The death benefits usually remain level.
- Waiver Of Premium
The waiver of premium clause comes in the form of a rider that can be added to most any life insurance policy. You have the option of adding it to any of the term life insurance policies described above for a very minimal fee. It simply states that if you should become disabled the life insurance company will keep your policy in force. They will waive the premiums.
Whenever you return to your job you continue your payments, not owing the company anything for the premiums missed. You must, however, be disabled for a minimum period of time…in most cases 6 months.
- Accidental Death Benefit
The accidental death benefit rider can also be added to your term life insurance policies for a small fee. If you die in an accident the life insurance company will pay an additional amount equal to the face amount of the policy for each unit purchased.
Let us suppose you bought one unit of the accidental death benefit for every $1000 of your base policy. Let us also suppose that your base policy is for $1,000,000. Upon your accidental death the life insurance company will pay $2,000,000 to your beneficiary.
Some companies allow you to purchase more that one unit per $1000. If, for example, you bought 2 units of accidental death benefit your family would be paid $3,000,000 upon your accidental death.