Term Life Insurance

What is Term Life Insurance?

This policy type can provide cash for your beneficiaries to pay off a mortgage or fund a college education. It is also known as pure life insurance. This type of life insurance guarantees that the stated benefit will be paid when the person who is covered dies during the specified term. Life insurance usually provides no other value than the stated death benefit. There is no savings component, like one would find in Whole Life Insurance.

What Does Term Life Insurance Cost?

Because it is only based on a limited coverage period, and it only provides a benefit in the event of death, Term Life Insurance is usually the least expensive life insurance policy. This is also due to the majority of terms expiring before the death of the holder, which reduces the risk of the insurance provider. For this reason, Whole Life Insurance usually has significantly higher premiums.

What Terms are Provided by Term Life Insurance?

Term Life Insurance only provides a limited coverage period, typically 10, 15, or 20 years, but it can range from 1 year to 30 years. If you decide to later, depending on your insurer, it’s many times possible to turn your term life insurance into whole life insurance. The typical “breakpoint” coverage levels are $100,000, $250,000, $500,000, and $1,000,000.

What are Term Life Insurance Premiums?

Premiums are usually based on a person’s age, gender, health and life expectancy. The insurance company usually determines the premiums based on these factors, as well as the policy’s value, which is the payout amount. Other factors might include interest rates, the insurance company’s financial status and state regulations.  In some cases, a medical exam may be required to determine your coverage premiums. There may also be inquiry made regarding your driving record, current medications, smoking habits, occupation, hobbies, and family health history.

What are Term Life Insurance Payouts?

If a person dies during their policy period, their beneficiaries will be paid the policy’s face value. Usually this payout is non-taxable and may be used for other purposes besides settling healthcare costs, funeral costs, and other debts. If the policy expires before the holder dies, there will be no payout. There is also no return of any payments when a Term Life Policy expires.

When can Term Life Insurance be renewed?

A Term policy can be renewed when it expires, but premiums are always recalculated based on age and other factors at the time of renewal.

What are the Types of Term Life Insurance?

There are different Term Life Insurance policies from which you can choose. Let’s review a few of the more popular ones.

Level-Term Policy (or Level-Premium Policy)

A Level-Term Policy covers a specified period, usually ranging from 10 to 30 years. In these policies, the death benefit and the premiums are fixed. These policies usually have a higher premium while the holder is a younger age because the insurance company has to account for an increased risk over the life of the policy.

Yearly Renewable Term Policy (YRT)

A Yearly Renewable Term Policy has no specified term in years. They can be renewed each year without the holder being required to prove insurability. However, the premiums rise from year-to-year as the holder ages. This policy is normally less popular since premiums can become unfeasibly expensive as the holder ages.

Decreasing Term Policy

Decreasing Term Policy death benefits decline yearly. The benefit is pre-determined and provided to the holder in a schedule. The policy holder still pays a fixed premium throughout the policy, even though the benefit payout declines. Policy Holders tend to use these in concert with a mortgage, so that, as their home equity rises, their life insurance benefit lowers.