Term Life Insurance
What is Term Life Insurance?
Term Life insurance provides coverage during a specific period of time. If the insured passes away during that period of time, the policy will pay a death benefit to the beneficiaries. Term insurance premiums are less expensive than permanent life insurance because the policy expires at the end of its term.
The two big questions to ask when buying Term insurance are: How long the term should be and how much life insurance will you need?
The annual cost of the insurance remains the same every year for the term period. Once the term period is over, you can usually renew the policy but the rate at renewal will likely have changed to reflect your new age.
Term Life Insurance can be used as an income replacement solution, providing funds for a loved one(s) after a breadwinner passes away. Term Life Insurance is also good for:
- Covering the balance of a mortgage, so that your family can stay in their home.
- Paying outstanding debts.
- Children’s education costs, to make sure there are funds for tuition and living expenses.
Other Insurance Products
Simplified Issuance Insurance
Simplified Issuance Insurance is a type of Life Insurance that is ideal for people who want a quick and easy way to get insurance coverage. The streamlined underwriting process reduces the underwriting requirements providing greater eligibility but increases the premium.
Permanent Life Insurance
Permanent Life Insurance protects you if you are looking for a long-term option to cover you and your family when you may have a financial impact from death. While there are many advantages to this policy type, the one major con is the premium is significantly more expensive compared to other Life Insurance policies.
Term Life Insurance FAQs
Below are common questions answered about term Life Insurance.
There are several different term insurance plan periods available with this type of Life Insurance policy. You can set up a term insurance plan for 10, 15, 20, 25 and 35 years or you can set up a custom plan with your insurance carrier.
A term plan can also be added as an optional rider to many permanent Life Insurance plans, then dropped when it’s no longer needed.
When you decide on a term insurance policy, you can choose between two plan types below:
- Automatically renews for the same term period at each renewal.
- Automatically renews for a 1-year term period after the initial term.
A premium is the cost of holding a term insurance policy, which you pay monthly or annually to your insurance company. The premium will vary based on your term policy period, your age, health and life expectancy at the time you set up your plan.
While a term insurance plan is often much less pricey than a permanent insurance plan, the premium paid out will increase each time it is renewed once the term period is over.
For the first year, the insurance rate for your Life Insurance policy will not change but will rise at renewal time. For example, say you pick a 15-year term insurance policy at a rate of $30 a month. After 15 years, you will need to renew your term policy, at which time the premium will increase.
The longer the term of the policy, the higher the policyholder’s premium for the term period (this applies to initial and renewal terms).
There are several advantages to having a term Life Insurance plan. The main benefit to a term plan is the low initial costs on short-term policies.
For example, if you are in the market for a short-term plan insurance plan (10 or 15 years), your premium will be lower compared to a longer-term plan (20 + years).
There are several downsides to a term insurance policy, including:
- Premiums rise drastically every time the policyholder renews the policy for the same term period (specific number of years).
- Renewed annual plans after the 1-year term mark become pricey. (i.e., premiums increase)
- Most term plans expire before life expectancy, at age 75 or 85 years of age.
- Life Insurance needs evolve and outlast the initial term of the policy.
You may choose a term Life Insurance plan, if you:
- Have temporary, short-term needs (mortgage, debt, children’s education fund).
- Require an affordable monthly or annual premium.
- Require flexibility in a Life Insurance plan.
- Have a beneficiary that will receive a tax-free death benefit up until the policy’s expiry period.