Due to its affordability, term life insurance is a popular form of life insurance coverage. Unlike permanent insurance, it does not build cash value and doesn’t last for a lifetime. If the term expires, such as five, ten, twenty, or thirty years, then the death benefit protection ends.
When you need temporary coverage, such as while raising a family, term insurance can be a smart choice. It is important to note, however, that term insurance is not the correct choice if you need lifetime coverage, for example, if you have dependents with special needs and need coverage for the duration of their lives. Check out these basic types of term life insurance coverage to see if it’s right for you.
Return of Premium Term
Return of premium term life insurance costs more than standard level term life insurance. However, it also reimburses the insured for some or all of the premiums he or she paid into the policy and this means you can receive a lump-sum payment once the term of the policy has expired so that the accumulated premiums can be repaid.
It is argued by some financial planners that if you buy traditional term insurance and invest the difference in an IRA, you will be ahead of someone who buys a return of premium policy. The advantage of this type of policy is that your money back is guaranteed, while there may be no guarantee on the investment you choose to make.
Convertible Term
There are many term insurance policies that offer this option, and some of them include it as a standard option as well. As its name suggests, convertible temporary coverage is so called because you can convert it to permanent coverage without providing proof of coverage (such as getting a medical exam or answering medical questions) to prove that you are covered.
When you wish to have permanent coverage but cannot afford it at the moment, convertible term insurance can be a good option for you. The conversion of a convertible term policy may only be possible for a certain period of time after the policy has been issued, such as the first ten years. It is very important that you understand the terms under which you can convert your policy if it has this feature or you are considering purchasing a policy with this feature.
Keep in mind
As a result of the fact that permanent insurance is more expensive than term insurance, your insurance premium will increase when you convert the full death benefit of a temporary policy into permanent coverage. This is because permanent coverage is more expensive than term coverage, and it will be determined by the age at which you convert the policy.
Decreasing Term
It is important to note that when your life insurance premiums are reduced, they remain the same throughout the life of your policy, but the death benefits of the policy continue to decrease. As a result of the reduction in death benefits, this type of temporary coverage is more affordable than premium level insurance policies.
A declining-term policy, similar to life insurance for a loan, can be a good investment if you want to cover declining debts, such as a mortgage, as they become less expensive over time. In return, these policies are generally more affordable than life insurance for the duration of the loan due to the fact that you usually have to go through a certain level of underwriting to get them approved. As well, you are able – and often should – to choose a beneficiary other than your lender.
Child Term Rider
Term or permanent policies can be purchased with a child temporary rider. If your child (or children) dies, you will receive a certain amount of benefit. Underwriting is not required. A child insurance policy is usually less expensive than buying a separate policy for each child, and it can be converted into a permanent policy once your child reaches a certain age, such as 25.
Group Term
There are many forms of group term life insurance available through your employer. Group term life insurance can be the cheapest form of term life insurance, particularly if your employer pays some (or all) of the premiums. It is generally not necessary for you to prove that you are insured in order to receive insurance coverage. Furthermore, the IRS considers the dollar amount of premiums for the first $50,000 of group coverage as an IRS tax-free fringe benefit.
As a result of the low cost and generous insurance claims (if any), workers who need a large amount of non-permanent death benefit coverage may want to consider their group benefits first. One of the most important limitations of a group policy is that you cannot obtain it unless you belong to a group or organization that offers it to you (such as an employer or fraternal
Adjustable Premium Term
A term insurance policy cannot be changed at the insurer’s discretion after it is issued in most cases. However, a term-adjustable premium policy allows you to choose a lower premium at first with the option of increasing it later during the policy’s life. The insurance company cannot, however, raise your premium above the policy’s maximum.
Level Term Policy
As far as life insurance is concerned, a level term policy is a standard type of policy in which the premiums are kept the same and the death benefit is kept the same until the policy of insurance expires. If you are a young wage earner with young children, it may be a good idea to consider this policy. Parents are generally required to protect their children’s lives, at least until they have graduated from college, with a substantial death benefit. This type of protection can be obtained at a reasonable cost by purchasing a Level term insurance policy.
In most cases, a term policy will cost thousands of dollars less than any type of permanent insurance policy as far as cost is concerned.
It is important to note, however, that as you age, the cost of life insurance will become prohibitive. As well as that, if you wish to continue coverage after your initial application, you will have to reapply after the expiration date. Any health problems that you have experienced since your first application will also increase the cost of your insurance or even void it.
If you are 75 or 80 years old and want a life insurance policy, you are not capable of getting a policy that will last more than 10 years. There may be some additional restrictions from the insurer, but there are generally three ways that a senior can be restricted:
The policy will be valid for a period of ten years if you are 75 to 80 years old
The policy is valid for a period of 15 years for those between 70 and 75 years of age
The policy is valid for 20 years if you are 60-70 years old
A policy covering a period of 30 years for a period of 50-60 years
Keep in mind
The cost of term insurance is much lower when you are younger, but it may be unavailable as you get older, and health problems may make you ineligible for coverage.
Conclusions
The term life insurance policy expires after a certain number of years unless there is a renewal clause or a conversion clause.
The child temporary rider is an affordable way to add coverage for your children to your existing policy, which can be converted into permanent coverage once your child has reached the age of 18
It is possible to choose from a variety of term life insurance policies depending on the type of coverage you are looking for.
For example, group policies and credit policies do not need to undergo underwriting in order to obtain term insurance.