Term Life Insurance
What Is Term Life Insurance
Term life insurance is the most commonly purchased type of life insurance in the marketplace today because of it’s affordable rates and valuable protection benefits.
Term insurance is as simple as life insurance gets and is very easy to understand. An insurance company will guarantee a death benefit for a fixed period of time (term) in exchange for a premium. Term life is most appropriately used to protect against financial responsibilities which are fixed for a short to intermediate length of time. The most common instances we see a need for this coverage is to: replace income prior to retirement, to cover the duration of a mortgage, to secure a business loan or to protect a business interest, and to secure a child’s future education.
If you are simply looking to receive term life insurance quotes based on age, you can use our quoting tool to the right (bottom of page on mobile) and use your specific birth-date, health status, and benefit amount desired.
Types of Term Life Insurance to Consider
Guaranteed Level Premium
The most frequently purchased term life policies provide guaranteed level premiums – typically bought at 10, 15, 20, 25, or 30 year terms. These policies provide you a death benefit for a given length of time for a fixed premium that will never change during your term of coverage. Your premium cost will be based primarily on your age and health status. Probably 90% of our clients choose a level premium policy as it is often inexpensive and sufficiently meets their needs.
Decreasing Term Life Insurance
Decreasing term insurance policies provide a death benefit that will slowly be reduced in face amount during the term of the policy. Typically the policy’s benefit decrease will follow a fixed reduction schedule, often times remaining level for the first 10-15 years and then beginning to drop in death benefit as well as the policy’s premium cost.
These policies are most often applicable to cover a mortgage obligation that declines over time as a homeowner continues to pay off their loan. Similarly, a decreasing term life policy may be used to cover a business loan that is being paid off over time.
Annual Renewable Term (ART)
Most consumers will be better off considering a guaranteed level premium term policy for a length typically ranging between 10-30 years. Level premium policies offer the most affordable rates as well as the desired benefit length. However, some individuals will find a policy that provides coverage on a year to year basis is all they need. These policies are referred to as annual renewable term. With this coverage, you will secure a period of “insurability” with the life insurance company you’re applying with which will give you the option to renew your policy each year without any additional underwriting requirements. Each year you choose to renew your policy, your premium will increase with your age. For this reason, we do not typically recommend this coverage unless it is simply needed to cover a very short term debt obligation (>5 years).
“Select-a-Term” Life Insurance
American General Life Insurance Company offers a very unique feature with their term life insurance product that they call “Select-a-Term” which offers terms of 10 years and then any length between 15-30 years. This flexibility can be very useful when using a laddering approach to help save money on your insurance.
Term Life Insurance With Guaranteed Income Protection Option (IPO)
A few companies offer what is referred to as an Income Protection Option on their term life insurance policies. This option gives an alternative way to pay out death benefits to a beneficiary other than just one lump sum. Income protection options can guarantee an income stream for the chosen beneficiary(ies) for a given length of time, usually that ranges from 5-25 years. Choosing this option will also save you money on your overall premium cost.
Term Life Insurance With Living Benefits
Traditional term life insurance policies only provide a benefit in one scenario: when you die within your period of coverage. Think of traditional term insurance as life insurance in its absolute purest form. Now, there are a few companies that offer new generation life insurance products that in addition to providing a given death benefit amount, can also provide what are referred to as living benefits. Living benefits gives you the choice to access cash benefits while the insured is alive in the event of certain conditions such as critical, chronic, and terminal illnesses, as well as cognitive impairments. These benefits are provided in exchange for a premium at a guaranteed level amount for the duration of policy.
The licensed agents at Coomes Insurance always make sure to present these policies as an option because we are a firm believer in the comprehensive financial protection that they offer. There are only a handful of life insurance companies currently that offer this type of innovative type of policy with what we consider to be comprehensive living benefits, but they are absolutely worth considering. Many of our clients will find that these options are not much more expensive for the amount of added protection they provide.
In this article, we go much more in depth about the benefits of this new generation of term life insurance products.
Employer / Workplace Term Life Insurance
Many companies will offer life insurance coverage options to their employees. Some employers will pay for a certain amount of coverage for their employees, typically between 1-2 times annual salary. Employees may also have the option to purchase additional life insurance through an employer group plan without any medical exam or underwriting requirements.
Although obtaining life insurance through your work can be more affordable and convenient, there can be one huge downside to relying on this coverage that we always advise or prospective clients on. The biggest problem with employer-sponsored life insurance is the lack of portability for the policyholder. If you’re work situation changes, whether it be that you found a new job, were laid off, or perhaps even if your work status changes from a full time to part time capacity, more than likely you will not be able to keep your coverage regardless of the scenario. The last thing you would want is to lose your life insurance coverage after a change in health that may disqualify you from obtaining coverage at similar rates, or even worse, disqualifying your insurability entirely.
If you have questions about the life insurance options offered by your employer, email us at firstname.lastname@example.org and we would happy to review the policies with you. In many cases we find that employer plans only offer benefits between one or two times your annual salary, which may or may not be enough given your unique circumstances. However, if this coverage is a free benefit, it absolutely makes sense to take advantage of it, and then decide if you need an individual policy to help fill in any gaps in coverage.
Term Life Insurance Conversion Options
One of the most important benefits of a term life insurance policy (that often goes unmentioned by other agents) is the conversion privileges available to you. Conversion gives the Insured the option to exchange a part, or all of their current policy’s death benefit amount for a permanent life insurance policy offered by the same company.
If qualified based on the provisions of your life policy, your conversion privileges will allow you to exchange to a permanent type of policy without any additional health qualifications or underwriting, regardless of your health status. This benefit can be extremely valuable to an Insured, especially if their health has declined since when they first bought their policy.
Not all conversion privileges are equal, some companies have much stronger permanent product offerings for conversion that others. Some life insurance companies focus solely on term insurance and do not even offer permanent products. This is why it is important to use an independent life insurance agent that can has access to the best available companies and can advise you on their conversion options.
Insights: How To Save Money On Term Life Insurance
Insight #1 : Work with an independent agent
If you in absolute perfect health then it is highly probable that you will qualify for the best health class offered by the life insurance company you choose to apply with. If this is your situation, then the life insurance purchasing process will be a piece of cake and you will find your premiums to be very inexpensive. An independent agent can find you the most affordable rates from the some of the highest rated life insurance companies in the nation.
If you have any health issues at all, then working with an independent agent, especially one who understands high risk life insurance, will be in your utmost interest.
Insight #2 : Pay Your Premiums Annually, If Possible
If your financial situation allows, we recommend paying premiums on an annual basis. When compared to monthly premium payment options, term life insurance companies offer somewhat significant discounts ranging from 5-8%. In today’s economic world, it is all but impossible to find an investment vehicle that can generate any meaningful guaranteed returns, so it is probably in your best interest to take advantage of these significant savings. To learn more, you can reference our detailed article to help compare monthly vs annual life insurance premiums.
Insight #3 : Stacking Coverage
Stacking coverage, also known as laddering policies, can make a lot of financial sense depending on the financial obligations you must insure. This is a concept where an Insured simply will layer two or more life insurance policies that will usually vary in term lengths and benefit amount to cover their needs. For example, let’s say you have several needs for life insurance. Perhaps you want income replacement coverage until expected retirement in 25 years, as well as cover a mortgage that has another 12 years, and protect future education expenses for your 8 year old child. With these unique needs, laddering a few different policy term lengths can make sense and help save a lot of money.
Insight #4 : Guaranteed Income Life Insurance Benefit Design
As referred to previously, there are a few companies that offer term life insurance with an Income Protection Option (IPO). These policies offer flexible beneficiary payment options other than the traditional one lump sum death benefit payment. Life insurance with an IPO will be less expensive when compared to that same policy without using an IPO.