If you’ve been considering life insurance, you’ve most likely heard financial planners and advisors tout the benefits of term life insurance. Term life insurance is known as the cheapest and most popular type of policy available. This is because there are dozens of different kinds of term life insurance policies addressing every life situation you may be facing, not to mention the fact that it is typically the most affordable coverage for a person of any age. Determining the best type of term life insurance for you depends on multiple factors, including your age, health, present and future income, assets and liabilities.
Term Life Policies
There are many types of term life insurance policies, among them level term, increasing and decreasing term, high risk, survivorship, group, guaranteed, no exam, and mortgage life insurance. Level term offers a low, fixed premium and stable death benefit for a term of 5, 10, 20, or 30 years. With decreasing or mortgage term life insurance, the death benefit and premiums decrease each year based on the insured person’s age or the principal owed on the mortgage, allowing the cost of the policy to adjust as your income increases year after year.
Decreasing term life insurance, similar to mortgage life insurance or credit life insurance, is usually used to cover a debt like a mortgage loan and both the death benefit and premiums decrease over time as you pay down the liabilities. Banks, lenders, or financing companies may sometimes require life insurance as collateral for a business or personal loan, too.
Some term life policies may be renewable at the end of the term. It is important to check the policy provisions to see if a medical exam or physical is required at the time of the policy renewal. Generally, renewable life insurance offers more benefits to young individuals or parents since rates of renewal policies are not as cheap as an insured person grows older. Renewable policies are a low cost alternative to permanent life insurance policies – whole and universal.
Young people may want the benefits of whole or universal life insurance, but not be able to afford the premiums in their budgets. Convertible term life insurance allows the policyholder to change or convert the type of policy from term to whole or universal life when their budget permits.
With convertible life insurance, families and seniors still have the protection of affordable term life with the option to purchase additional coverage with options at a later date. This is a good low cost option for individuals who intend to use life insurance as part of financial planning.
If, for any reason, you think you would be ineligible for or denied coverage by the insurance company, you can apply for a no medical exam policy. Although the premiums will be higher, this type of life insurance exempts you from the usually physical exam and blood tests required for underwriting. Instead, you will be asked to answer questions regarding your current state of health as well as offer a full medical history. The death benefit is typically limited, but older applicants or ones with pre-existing health conditions are able to get enough protection to cover final expenses. Other terms and conditions or exclusions may apply, such as no payout or claims covered for the first 2 years after issuance, so read the fine print when considering no exam life insurance.
Who Should Buy Term Life?
Since rates are largely based on the age and health of the insured person, a term life policy offers the cheapest premiums and greatest advantage to young individuals in good health because they can lock in the cheapest premiums for 20 to 30 years.
Beyond the probable fact that most Americans need life insurance, protection is most essential if you fall into the following categories:
- you’re married
- you have kids or dependents
- you’re single but have financial dependents or loan co-signors (i.e. your parents for student loans)
- you have grown children and want to leave them an inheritance, and need a policy to cover estate taxes
The bottom line is – any time you have someone financially dependent on you, you likely need to buy life insurance.