Is Term Life Insurance is Good For You?
Let's start this off with understanding that there are three basic types of insurance that are deemed "Term" insurance.
The word "Term" refers to a policy that has a time limit to its coverage. This would be in contrast to Whole Life insurance which does exactly what it sound like it does; it covers you for your "whole life."
With Term insurance you have three basic options:
- Level Term
- Increasing Term
- Decreasing Term
Level Term
Level Term is the most common type of temporary protection that is used by policy owners. The word "level" in this instance refers to the death benefit being level and unchanging for the duration of the policy. The premium on a Level Term policy is also level during the life of the policy. For example, a $100,000 10-year level term policy will provide a $100,000 death benefit if the insured dies any time during the 10-year period. The premium will also remain level during the entire 10-year time. If the policy is renewed at the end of the 10-year policy period, the new premium will be based on the policy owner's new age at time of renewal. If you notice, this is for a 10-year period. This is the "term" outlined in this specific example and wouldn't cover a policy holders entire lifespan unless the policy holder is late in life.
Who is level term insurance possibly good for? A person late in life with a fixed income.
Annually Renewable Term (ART) / Increasing Term
ART insurance is the purest form of term insurance. The death benefit remains level (in that sense, it's a level term policy as well), and the policy may be guaranteed to be renewed each year without proof of insurability, but the premium increases annually according to the attained age, as probability of death increases. In other words, the increasing premium allows for the policyholder to stay insured as the benefit stays level and their health changes due to increased age.
Who is ART Term possibly good for? A person middle age with a steady income.
Decreasing Term
These policies feature a level premium and a death benefit that decreases each year over the life of the policy term. Decreasing term is primarily used when the amount of needed protection is time sensitive, or the payment of a mortgage or other debts if the insured dies prematurely. The amount of coverage thereby decreases as the outstanding loan balance(s) decreases each year. A decreasing term policy is usually convertible; however, it is usually not renewable since the death benefit is $0 at the end of the policy term.
Who is Decreasing Term possibly good for? A person late in life with debts to pay.
Term insurance is a very specific vehicle for those that are looking for coverage for a specific period of time (term). The guidelines and restrictions of term insurance aren't negatives. They are in place to best help someone within a specific time frame and to accomplish specific goals. Just remember that even if a person is late in life, a Term plan does not cover the life of the person. Instead, the person is covered for the life of the policy.
Real Examples
State Farm:
Term-life insurance through State Farm is available in terms of 10, 20 or 30 years for up to $250,000 face value. Premiums are payable monthly or annually and you have the options to continue coverage on a renewable basis up to age 95. Premiums may increase annually but will never exceed the maximum premium in the policy terms. The death benefit is tax-free. You can add additional coverage with riders for children’s coverage, an additional named insured on the policy and a waiver of premium rider if you become disabled prior to age 60.
New York Life:
New York Life offers term-life insurance with several options including yearly convertible term policies, level premium convertible term policies and policy riders that add extra benefits. Policy terms are available for periods between 10 and 20 years with guaranteed premium options available for as long as 20 years. The policies are upgradable to a whole life insurance policy at the end of the term. There are several policy riders available to add coverage for accidental death, children’s insurance, chronic care, disability waiver of premium, living benefits and more.
Transamerica:
Term life insurance through Transamerica is offered in policy terms ranging from 10 to 30 years in five-year increments in values of $25,000 to $2,000,000. Some policies do require a medical exam. There are two term-life insurance policy types available through Transamerica; Trendsetter Super Series (up to $1,000,000 in coverage with a guaranteed premium that is convertible to a whole life policy at the end of the term); and the Trendsetter LB (up to $1,000,000 with living benefits option to receive an accelerated death benefit with a qualifying illness while you are still alive).
AIG:
Term life insurance through AIG is offered in term choices of 10-, 15-, 30- and 35-year terms. A unique feature of the AIG term-life policy is the AG ROP Select-A-Term option where you can get money back when you reach the end of your policy term without a claim. The money is guaranteed and also tax-free.