What Is Term Life Insurance?
In contrast with whole life insurance, some think that ‘term’ in term life insurance stands for part insurance while whole relates to the complete insurance policy. But the truth is different.
‘Term’ in insurance lingo has an exact meaning of what entry 2 of Merriam Webster states: is a limited or definite extent of time; especially: the time for which something lasts.
So, term life insurance is a policy that lasts for a limited or definite extent of time.
Accordingly, if you buy a term policy for 10 years on 5th January, 2017, the term will be 05-01-2017 to 05-01-2027. And it will follow the calendar and clock method. That means past 12:00 hours on 05-01-2027, the policy will lose it validity.
Obviously, it means your protection for life insurance goes off that very moment.
How the Term Life Insurance Works
Each insurance carrier has their predefined term policies. They come in 1, 5, 10, 15, 20, 25, 30 or 35-year terms. You cannot change the predefined option. You have to choose one from these that suits your need best.
As a result, you are not free to buy a 7-year term life insurance policy if you want to. You, however, can buy a 5-year term and then renew it for another 2 years.
Again, all companies do not sell all the terms. For example, yearly and 35-year terms are not available with most insurers. The terms like 5, 15 and 35-year terms are also not much on the go. The most popular terms are 10, 20 and 30-year policies.
Does Term Life Insurance Have Brand Names?
The phrase ‘term life insurance policy’ is a generic name. Each company has their own brand names for their term life insurance policies. Here are some examples of brand names:
Policy Brand Names
Term 360 Plus
Advantage Elite Select Life
LT Security Plus
United of Omaha
Term Life Answers
What They Sell in Term Insurance
Term life policies sell death benefit, aka face value or coverage. This coverage is the very insurance that you buy from the company. It is the total amount of money that they legally guarantee to pay (when you die) to people whom you choose as nominees. Nominees are also known as beneficiaries.
But remember, the policy has to be active for the benefit to covert.
What Are the Types of Term Life Insurance
Term life insurance policies branch off in the following 4 categories:
Level Term Insurance Policy
A level term policy is one which does not raise its cost for the entire contract years. That means as long as your level term life insurance policy’s time is not over, the cost will remain level– unchanged throughout. Also, you have the same amount of money protection for as long as your policy is in force. If you happen to pass away within the contract years, the death benefit will go to the beneficiaries.
Increasing Term Life Policy
With increasing term life insurance, the coverage keeps going up at a regular pace. In conformity with the coverage, the premium also usually keeps going up as you age. The reason is the more you grow older, the more potentials of risk you pose to the carrier. The economic situation of the country also has its impact on the cost. That means inflation (the diminishing value of dollars) also factors in it.
Decreasing Term Life Policy
A decreasing term life insurance policy may sound strange to you. The decreasing factor relates not to the cost of the policy, but to the coverage. What it stands for is the more you pay to the insurer over time, the thinner in size your coverage becomes.
This type of policy is designed for people who have burdens like mortgages. As your mortgage loan keeps lowering, you insurance also goes on covering you in smaller figures.
Return of Premium Term Life Policy
Return of premium life insurance policy returns the sum total of all your life insurance premiums at the end of the policy if you outlive the policy tenure. If you die within the specified period, your beneficiaries will receive the total death benefit from your return of premium policy.
This policy is good when you do not want to lose your money.
Level: The Best Term Life Policy
Of the 4 types of term life insurance policies, all have their criticisms as well as appreciations. Without doubt, all exist in the market because all have their utility. So, they have their buyers too.
The level term life insurance is, however, the most popular, most purchased and most proposed of all the 4 types.
The reasons are:
The level term life insurance policy is the most affordable. You can buy bigger coverage for literally dirt-cheap costs. For example, a 25-year old non-smoker excellent health male can get a $500,000 20 year term life insurance coverage for as much as $20 a month or even at a lower rates.
Again, that level term is complication-free is another reason people love it for . You simply buy the policy, keep the premiums up-to-date and can be sure that your nominees are secure.
Another reason level term is popular is the death benefit is guaranteed.
Also, no matter how your health grows over the years or anything, you will not be overcharged. Once you buy it, the cost does not change till the end of the policy.
Why Other Policies Are Not So Popular?
The Increasing Term
The increasing term life insurance policy is, so to say, like a trap. Your age works as a barometer for the cost of your policy. Similarly, when you are on this policy, your coverage, as we have already mentioned, keeps going upward in line with the financial situation of the country. This raise in premium figures are adjusted at regular intervals and finally the sum of premiums may even outweigh the coverage.
The Decreasing Term
Decreasing term life policy, you see, finally brings you nothing like the level term. It is good only for those who need insurance against a loan or mortgage so that the coverage keeps going down as the liability comes low through repayment. So, if you have a 15 year decreasing term life insurance policy for $100,000 and you die while you are only a month away from total repayment, people who depend on you will get almost nothing from your policy.
The Return of Premium
Return of premium might sound good prima facie. Good points are you get your premiums back if you outlive the term, you can borrow against your premiums, beneficiaries can get full coverage if you die etc. But keeping in mind the age limit that return of premium policy follows (65 max), it is unlikely that most policyholders will die and get their coverage. Besides, the borrowing does come with interest rates while the insurer returns only the premiums to the policyholders. Also, the cost for this policy is much higher than the level term policy. So, unlikely mortality age, high cost and non-payment of any interest on premiums make it less desirable.
How Much Does Term Life Insurance Cost?
Though term life insurance is typically affordable, as to how much it will cost you remains a relative issue. The cost of any insurance policy depends on many aspects. This depends on three essential components of the policy. First is you: a number of data related to you determine whether you will have a cheap term life insurance policy or not. The second is how much coverage you want and the third, which company you are choosing for buying the policy.
Determiners of Costs
Despite a falling tendency, life expectancy in the USA in 2015 was 78.8 years (National Center for Health Statistics). Although such statistics might not work for individuals, life insurers ideally make use of them in determining your costs. The more your possibilities of living are, the less expensive your costs will be. This is why the younger you are, the less you will pay for your insurance. Conversely, you will pay higher costs when you buy later.
You might think it to be a sexiest attitude but whether you are male or female plays an important role in fixing your life insurance costs. The fact is that average life expectancy for females is always and universally much higher than that of the males. This is why females can easily outsmart the males while buying life policies. They pay less.
Both your physical and mental health play a crucial role in determining the cost of your insurance. If you are over-weight, have elevated pressure, have certain disorders, your cost will go upward.
Nature of Job
As to what you do is of vital importance to the person, known as the underwriter, who decides your insurance cost and eligibility. If your job falls in the dangerous category, you are going either to pay higher rates or even get a decline.
According to the government statistics smoking causes death to an estimated 1300 people in the USA every day. Likewise, estimates say that an estimated 88,000 people die annually of alcoholism, making it the fourth largest factor for preventable deaths in the country. Notably, 31% of accidental deaths occur by alcohol-induced sight impairment. So, these negative habits go a long way in determining your life insurance costs.
Legal records of felony, multiple tickets for driving etc. will have you pay more for your policy.
There are other factors that work behind the cost of life insurance policy. Of them, whether you reside in an area which is prone to natural disasters or if your parental family has genetically transferrable diseases also work as catalysts.
Does Company Matter?
It is a million dollar question, we think. The same product of one company might be way costlier when it goes to another. For example, quotes for a 10-year 1 million dollar term policy for a 30 year old excellent health Alaskan woman from Haven Life was $19.33. But when we asked State Farm for the same coverage for her, it went up to 33.95 dollars. This is why Life Insurance Mentors team suggest that our lists of the companies that sell term life insurance cheapest.
How to Buy a Term Life Policy
There are 2 ways you can buy your life insurance policy: online or offline.
If you go online, you have 2 options before you:
Direct from the Company Website
When you buy from the company website, they will ask you to put in your personal information with contact numbers to keep in touch with you. Company sites provide phone numbers to which you may directly make a call to help them guide you through. They also call you back. But initially they will send you an automated email for call to action. The rest depends on you.
From Online Brokerage Agencies
There are many online brokerage agencies who deal with several companies. They have their salaried agents who work independently to find the best policy for you. Some agencies like term4sale refer their prospective customers to independent insurance agents who help them through.
Off-line from Agents
And if you go offline or the traditional purchase method, you need to contact an insurance agent who is licensed to work in your area. You will have 2 types of insurance agents: company-specific and company-independent. Company specific agents have fewer policy options for you to choose from as they sell only they company’s products. On the other hand, independent agents sell products from multiple carriers and can provide you more options to choose from. They also neutrally help you find the best option.
Do I Have to Pay the Agent?
Usually no. You do not have to pay anything to the company agents. They have their commission taken out from the sale that they make.
Is Physical Exam Necessary?
Physical exam has always been an integral part of life insurance policy sale and purchase. Two important purposes work behind it. First, it determines whether you are eligible for the insurance policy or not. If you are found bidding fair for considerable longevity, the insurer okays your application.
Second, your health report determines the cost. If you are the fittest, you will have the best rate.
Insurers have 3 strategies with respect to marketing their products these days:
Physical Exam Required Policies
Policies with bigger amount of coverage usually require physical exam.
No Physical Exam Policies
Policies of comparatively low or moderate overage fall in this category. Usually you are asked to provide some health questions to qualify for these polices. However, it is noteworthy that the information you provide is checked from different agencies. So, before buying a no physical exam life insurance policy, you had better have a clear understanding of it.
No Health Questions Asked Polices
This type of policy sells the lowest coverage for you. The usual highest coverage with most companies is $25000 only (not unexceptionally). This type of policies are known as funeral advantage policy, burial expenses or final expense life insurance. However, these policies fall in the whole insurance category.
Do Quotes Work?
Quotes are assumed premiums for life insurance policies. These days, these software-generated projected costs of life insurance policies have gained huge popularity. They save time and provide scope for you to find the best insurance rates. You can get term life insurance quotes from one of these brokerage agencies:
However, it is good to remember that the quotes are not costs themselves.
Is Getting Term Life Insurance Guaranteed?
Life insurance policies are not cash-and-carry items. You have to have your insurability or eligibility to buy a product. If you are over certain age, below legal age, unemployed, already refused by another company, have critical physical or mental issues, immobile and/or unable to work, belong to an extremist group, declared bankrupt, have felony records etc., you are unlikely to get your insurance.
When They Pay
Insurance carriers pay the coverage to the beneficiaries only if you die within the term: the time-frame you buy the term life insurance for. So, if you buy the 20 year term that we mentioned above and die at 12:05 A.M. on 06-01-2027, your beneficiaries will not get anything from the insurer.
They pay only when and if your policy is in force.
When They Do Not Pay
Insurance policies bear a range of terms and conditions that they use as tools to safeguard their interests. They are not ready to pay you and any breach on your side will leave the beneficiaries unpaid. These are the situations they will not pay you:
As already mentioned, unless you pass away within the term span, they will not pay anything to the nominees.
You should not miss the last payment date. They will not pay.
Crossing the grace period will make the policy dead and they will not make any payment.
If you die during the waiting period of initial 2 years, they will not typically pay (unless you die by an accident).
Besides, if you break any one of the terms and conditions that they state in the policy, they may refrain from making a payment.
Also, any intentional misstatement on your part may take the benefit away.
Should You Buy, Pay and Sleep?
Not at all.
Find some time to review your policy in view of change in your life situation. For example, if you had one kid at the time of buying your policy and two years later you had another baby in your family, it is important that you focus on two essential things: on the need of raising your coverage and on updating the beneficiary.
Also, you should keep track of the payment that you have been already making. This will ensure that there is no undesired lapse in payment.
What Else Is Important?
When you want to get term life insurance policy, two more points are worth pondering over: that you can extend, revise, or convert your policy (to whole life insurance you want to) and if there is any rider that you would like to consider. Though many financial experts do not favor riders, (which provide extra-benefits in exchange of extra price) a few of them like the disability income rider and the waiver of premium riders are useful for those who do jobs which involve risks of accidents.
So check if your insurer provides riders that you would like to buy.
Tips from Life Insurance Mentors
We have the following tips for you as regards purchasing a term life insurance policy:
Go for a level term insurance policy. This will bring the ease of mind that people living in your bosom will be safe.
Take care of the 4 C’s: coverage, calculation, comparison and carrier.
Having bought a policy, take care that you are paying the premiums regularly.
And don’t forget to update and keep track of your policy.