How Does Term Life Insurance Work?

The word “term” refers to the length of time you choose to purchase for your policy. These can range from ten, twenty, or even thirty years. Each term comes with a premium based on the selected length of time. These premiums are the amount of money you pay to the insurance company every month to keep your policy active. Many policies offer a “level premium,” which means the cost will stay the same for the policy duration.

Insurance companies calculate premiums by assessing the individual’s age, life expectancy, and overall health. There may also be a required health exam before the individual can receive coverage. Once a premium is determined, it is fixed and will not change for the length of the term. If the term expires and the policyholder dies, there will be no payout; however, a payout is given for the policy’s face value if they die within the term limits.

If a policyholder chooses to renew or extend their coverage, their current age and health condition are used to determine the new premium’s price. Generally, this will cause the cost of the premium to go up. Depending on the individual’s age, health, and requested payout, premiums can vary. Some policies start at fifteen dollars a month for $250,000 worth of coverage.

Are There Different Types Of Term Life Insurance?

There are four different types of term insurance: Convertible, Decreasing, Increasing, and Annual Renewable.

Convertible Term

A convertible term policy allows an individual to convert their term life plan into a whole insurance plan. They can forego the typically required medical exam and health condition questions, which is a huge benefit.

Decreasing Term

Also known as a mortgage term, with the decreasing term policy, the beneficiary’s payment decreases over time as the mortgage payment of the insured goes down. The payout declines since the amount of money the beneficiary will need to pay off the deceased’s mortgage is lower. The downside to this term is the premium remains the same regardless of the payout amount.

Increasing Term

An increasing term will allow an individual to increase the payout amount over time. Although this does cause the premium to rise, those wishing to pay a lower premium when they are younger due to having more expenses can still apply for whole life insurance later on without going through the qualifying process.

Annual Renewable Term

If you are concerned with getting approved once your term plan is up, an annual renewable term is a good choice. Coverage is guaranteed renewable every year; however, the premium will go up respectively. Although not the most cost-effective choice, if you have any concerns that your health may stop your approval odds in the future, an annual renewable term will give you peace of mind knowing you will continue to receive coverage.

Who Should Get Term Life Insurance?

Term life insurance is an ideal choice for younger individuals considering buying a life insurance policy. Premiums are typically much lower than whole life insurance, and the terms allow you to get specified coverage for your current walk of life. Those currently in good health but with possible future health concerns based on family history may benefit from term life insurance. Individuals looking to cover a specified expense, such as a mortgage, can use term life insurance to ensure their loved ones can pay off the remaining debt after they die.

In conclusion, term life insurance is excellent for young people or those looking only to cover specific expenses after their death or who wish to start with a lower premium option. There are four different types of term insurance to choose from to ensure each person gets the exact coverage that’s right for them.