Term life insurance provides you with the most coverage at the lowest rate. It also allows more flexibility if you want to add or change coverage down the road. 99% of our clients choose term.
For example, Joe buys a $500,000 20 year term to protect his spouse and kids (6 & 9 yrs old). If he were to unexpectedly pass during the next 20 years, his family would be able to use that $500,000 to help pay off the mortgage on the house and kids’ college tuitions.
Common Term Life Insurance Questions
We want to make sure you are fully educated on all the factors that go into buying term life insurance. Factors include - types of policies, riders and payment modes. Let's take a closer look at term insurance below!
How does term life insurance differ from permanent life insurance?
Term life insurance provides coverage for a specific number of years. Permanent, or “whole” life insurance guarantees protection for the rest of your life (as long as payments are current). Since permanent policies never expire, the annual premiums can be 5-20x more expensive than term policies and the policies are much less flexible if you want to change either your coverage amount or policy terms in any way. There are many types of permanent policies: whole life insurance, universal life insurance, variable life insurance, and variable universal life insurance. Permanent policies provide a huge variety of complex investment components, but in turn require a long term commitment and additional fees/expenses.
When should I consider buying a term life policy?
Most advisors recommend buying life insurance as soon as you have another person that is dependent on your income. In the unlikely event that you were to pass unexpectedly, a life insurance policy will help provide financial protection for that person or people. The cash benefit from a term policy can be used by your beneficiary(ies) to cover things you provided for them like a mortgage, education payments, and any debt & bills.
99% of our clients choose term life insurance, because most likely, these costs will be covered by the time your term ends. For example: In 20 or 30 years, your kids will probably be through college, and your mortgage will be fully paid off.
How long should my term life insurance policy last?
Most advisors will recommend looking at the age of your youngest child or when you want to retire. Term lengths range from 10 to 30 years and are most commonly available in 5-year increments: 10, 15, 20, 25, or 30 years.
One thing to keep in mind - the younger you are, the less you pay for a policy. Life insurance premiums get increasingly more expensive as you age. We recommend getting a slightly longer term if you are not sure, otherwise you may have to pay quite a bit more to extend or buy a new term later on.
What payment mode should I choose when purchasing term life insurance?
Whatever option is best for you and your financial situation. Most carriers will let you choose from monthly, quarterly, semi-annual, and annual payments. While monthly payments can be a more affordable way of breaking up the annual cost, some carriers do offer additional discounts for annual payments.
Do the premiums for term life insurance change over time?
With most term life insurance policies, the premiums stay the same throughout the selected term. This means that the original price that your agent got you will stay the same for whatever term length you chose, no matter what. This is called a level term.
Can I cancel my term life insurance at any time?
Yes. Clients are never obligated to keep a term life insurance policy and can cancel or change it at any time for any reason. However, if you cancel a term policy, you will not be reimbursed for your previous payments.
What is a “return of premium” policy or rider?
Return of premium is a specific type of term policy that returns your annual payments to you if you live longer than your term length. These types of policies are usually for people that want to buy term, but don’t want to “waste” their money paying for a policy without getting any money back if they outlive the term.
When looking into a return of premium policy or rider, it is important to factor in the extra costs and reduced flexibility. These policies are generally 2-6x more expensive than regular term policies and require you to be “locked in” for the entire length of the term.
What is “renewable” term life insurance?
A renewable term life insurance policy allows your beneficiary to extend the term length without having to qualify for coverage - i.e. no medical exam needed to renew. In the event that your health deteriorates during your original term length, a renewable policy will give you the option to extend and stay covered. Whereas otherwise you might be left without any insurance at all when your term ends. Most clients look at this as “peace of mind” for the worst case scenario.
What is “convertible” term life insurance?
A convertible term life insurance policy allows you to convert your term policy to a permanent policy without a new medical exam or additional underwriting. Each carrier has rules about when you are allowed to convert that policy. Most of these guidelines are based on your age & term length. When a term policy is converted to a permanent policy, the new annual premium is based off of the original rating class you received with your term policy as well as your age at the time of conversion.
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