What Are the Different Types of Term Life Insurance?

What Are the Different Types of Term Life Insurance?, Term life insurance is a well-liked type of life insurance protection due to its accessibility. It isn’t intended to last a lifetime and doesn’t accrue economic value, unlike permanent coverage. Instead, it lasts for a predetermined number of years, like five, ten, or twenty. Or thirty. The death benefit protection ends when that period has passed.

Because of this, term insurance can be a wonderful option if you only need brief protection. Such as when starting a family. But if you need lifetime coverage—perhaps because you have dependents with specific needs—term insurance would be a bad choice. To assist you in determining whether this is the best option below is a description of the fundamental categories of term life insurance coverage for you.

Level Term Policy 

The “typical” type of life insurance policy is a level-term policy. In which the death benefit and policy premiums are fixed (or level) for the term. If you are a young breadwinner with young children, you might consider this policy. Typically, until their kids finish college, parents need a significant level of death benefit protection. You can affordably obtain that protection with level-term insurance.

What Are the Different Types of Term Life Insurance?
What Are the Different Types of Term Life Insurance?

A $500,000 20-year level term policy, for instance, may cost you $23 a month if you’re a 30-year-old in good health. However, for the same death benefit, you might pay $475 a month for a whole-life policy (a sort of permanent life insurance). Term insurance will be thousands of dollars cheaper than any type of permanent protection in most cases.

However, as you become older, the price of life insurance may become unaffordable. Additionally, you must reapply if you wish to keep your coverage after a term has ended. Any health problems you’ve acquired since your initial application will also raise the price or potentially render you ineligible for coverage. A $500,000 term policy with an 85-year expiration date, for instance, may cost over $700 a month for a 65-year-old overweight guy with mild health conditions.

The age of the applicant is a limiting factor for many term life insurance plans. For instance, you might only be able to obtain an insurance policy for a 10-year term if you are 75 or 80 years old. These caps differ by the insurer, but typical caps for seniors are as follows:

  • 75-80 years old: 10-year term policy
  • 70-75 years old: 15-year term policy
  • 60-70 years old: 20-year term policy
  • 50-60 years old: 30-year term policy

Renewable Term 

When your policy’s term has ended, renewable term coverage ensures that you can continue to be covered (often for one year at a time) without having to reapply or requalify. This enables you to choose renewable term insurance if you start experiencing health problems that would otherwise preclude you from maintaining coverage under a new policy. Guaranteed renewable term coverage is another name for this kind of insurance.

However, because the renewability clause is based on your present age, your new rate will be greater if you use it. Every time you subsequently renew your policy, the rate will rise (which could be annual).

You might be able to obtain renewable term insurance, with or without the additional characteristics listed below insurance policies.

Convertible Term 

Many term insurance policies offer this as an option. And some include it as a standard feature. Because you can convert term insurance into permanent coverage without supplying proof of insurability, convertible term coverage gets its name (like taking a health exam or answering medical questions).

If you’d prefer to have permanent coverage but are now unable to pay for it. Convertible term insurance may be an excellent option. Once the policy is issued, conversion might only be a possibility for a certain period, like the first 10 years. Make sure you comprehend the terms and conditions of the conversion process if your policy contains this feature. Or if you’re interested in obtaining a policy with it.

Credit Term 

A life insurance policy known as a credit term is made to pay off a specific obligation. Such as a credit card or mortgage if you pass away before making your payments. The lender is typically the benefactor. The majority of credit life insurance plans are decreasing term ones (meaning the death benefit reduces at regular intervals). This is because as you pay off your debt in regular installments, the principal amount normally reduces over time.

The fact that most credit-term life insurance policies don’t require underwriting is one of their main benefits. In other words, you can apply without taking a medical exam or responding to medical questions. 2 A credit term policy may be a wise decision if you have debt, are in poor health, and cannot get any other type of coverage.

However, this lack of underwriting has a price: Credit term life insurance is dear. If you are a homeowner or credit card user who cannot medically qualify for more common types of term coverage, it might still be preferable to nothing.

Decreasing Term 

Your premiums for decreasing term life insurance stay the same throughout the policy. But the death benefit is gradually reduced. Because the death benefit is decreasing, this sort of term insurance is less expensive than level premium policies.

Decreasing term policies, like credit term life insurance, can be a wise decision when you wish to pay off a debt that is going down, like a mortgage. However, there is frequently some underwriting involved, making these policies generally more expensive and affordable than credit-term life insurance. Plus, you can—and often should—choose a beneficiary other than the lender.

Group Term  

The cheapest type of term coverage may be group term life insurance, which is frequently provided by your workplace. This is especially true if they pay for part (or all) of the cost. Typically, getting coverage doesn’t need you to provide proof that you’re insurable. Additionally, the IRS views the first $50,000 of group coverage’s premium payments as a tax-free fringe benefit.

Due to the low cost and lenient underwriting standards, employees who require a significant quantity of non-permanent death benefit insurance should generally go to their group benefits first (if any). The only true restriction is that you can’t get a group term insurance policy without being a member of a group or organization that does (such as an employment or fraternal organization).

Return of Premium Term 

A level term life insurance product that charges a higher premium than a typical level-term policy is known as a return of premium term insurance. In addition, it reimburses the insured for all or a portion of the premiums paid into the insurance. This means that when the term ends, you will be given a lump sum payment for your collected premiums.

According to some financial advisers, purchasing regular term insurance and investing the difference in an IRA will result in a better financial outcome than purchasing a return on the premium policy. Although there may be no guarantees from the assets you select, your money will return with this kind of coverage.

Adjustable Premium Term

In the majority of term policies, after the policy has been issued, the insurer cannot alter the premium at its discretion. A term policy with an adjustable premium, however, gives the insurance provider the option to start with a lower premium. And then raise it at a later time while the policy is still in effect. The maximum amount of premium allowed by the policy cannot be increased by the insurance company.

Child Term Rider 

Many term or permanent policies allow you to add a child term rider as an optional feature. If your child (or children) dies, this rider will give you a set death benefit. Underwriting is not necessary. Child term riders, which may be convertible to a permanent policy, are typically less expensive than purchasing separate insurance for each child policy once your child reaches a certain age, such as 25.

Check Also:

How To Endorse a Check to Your Business

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button