This Term Life Insurance Guide Will Help You Save.
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Term Life Overview
Term life insurance is a type of life insurance that provides protection for a level period of time from 1-40 years.
During the level term length period you choose, the premium you pay will remain fixed.
At the end of the level term period, the premium and/or the death benefit will change.
Each term life insurance company’s product works differently.
We’ll show you what to look for to ensure that you receive the best term policy that meets your needs and budget.
How Does Term Life Work?
You choose the level term length that best meets your needs. Term durations available include:
- 1 Year Term
- 5 Year Term
- 10 Year Term
- 15 Year Term
- 20 Year Term
- 25 Year Term
- 30 Year Term
- 35 Year Term
- 40 Year Term
One life insurer, AIG offers additional term lengths of 16 – 30 years in one-year increments.
Once you’ve determined your life insurance needs, choose the term length that you would like your coverage to last for.
In some cases, it may make sense to add multiple term lengths.
Conversion
A term life insurance conversion privilege allows you to exchange your term policy for…
Universal life insurance or whole life without having to go through medical underwriting again!
While a term conversion is hardly ever used, it’s important to have in the event you develop health issues in the future.
The term life insurance conversion privilege as it is called varies widely by the insurance company.
Some companies offer conversion for the entire level term period.
Other companies limit the conversion period and/or products available.
If you will be a senior by the time your level term ends, pay attention to the conversion privilege.
If you still need life insurance at that time, converting a policy is simple.
Riders
Most life insurance companies offer riders that you may add to your coverage when you apply.
The types of riders available are detailed in our Life Insurance Riders Guide.
You’ll see that some riders are free (accelerated death benefits), while other riders can be very expensive to purchase.
What Age Does Term Insurance End?
Most policies continue until age 90-95…but don’t let this fool you.
When the level term ends, the policy becomes an annual renewable term with rates increasing each year.
Of course, if you die, the policy will end when your beneficiaries are paid according to the life insurance settlement option you chose.
Here’s an Example – Male Age 40 – $1 million – 20-year term – The best rate today is $595 per year for 20 years…
In year 21, the guaranteed rate jumps to $24,605.
If you decide that you need life insurance to last longer than originally expected…
You may re-shop in the future or consider the conversion option available (explained below) on your existing term policy.
Term Life Insurance vs. Group Life Insurance
Term life is owned and controlled by you, while group life is controlled by your employer.
When comparing term life insurance quotes vs. group life insurance, it’s important to look at the pros and cons of each.
Group life insurance Pros vs Cons
| Pros | Cons |
| Easy Application Process | Rate increases every 5 years generally. |
| No Health Questions for base coverage | Additional coverage requires medical review. |
| Paid for by employer in many cases | Employer may cancel the plan. |
| Coverage amount may increase with salary | If you leave the job you could lose coverage. |
| Some policies may be portable if you leave | Some policies may not be portable if you leave |
| May allow conversion to permanent insurance | Permanent policy pricing not favorable |
Term Insurance Pros vs Cons
| Pros | Cons |
| You have 100% control over policy | Underwriting takes 6-8 weeks for many |
| Premium is fixed for the term length chosen | A paramedical exam may be required |
| Conversion options more favorable than group | Health issues may be costly |
| Pricing is more favorable at greater coverages |
With group life insurance, the base amount given to employees for free is a great deal and should be accepted.
As soon as you look at supplemental employer life insurance, consider an individual life insurance policy first.
Term Life vs. Universal Life Insurance
Universal life insurance is permanent life insurance that has the potential to accumulate cash values.
Those cash values may supplement retirement and may provide a lifetime guaranteed death benefit.
There are many variations of universal life insurance available including:
- Index Universal Life
- Guaranteed Universal Life
- Cash Value Accumulation Universal Life
- Survivorship Universal Life
The problem with some cash value universal life insurance policies is the non-guaranteed elements of these policies.
A guaranteed universal life (GUL) on the other hand works similarly to a term life policy.
The GUL is contractually guaranteed to provide death benefits with a fixed premium that does not change.
Term or Mortgage Life Insurance
When comparing term vs. mortgage life, there are important differences for you to understand.
The premiums for both policies remain level for the duration of the term.
The difference has to do with the coverage amount and how it may be paid out.
With mortgage life insurance, the coverage decreases each year as your mortgage decreases.
If you die, the death benefit may get paid to the mortgage company.
Compare that to term policies where the death benefit remains level and proceeds are paid to a beneficiary you name.
For other loans such as a business loan, term life with a collateral assignment to the bank are commonly used.
Term Life Insurance vs. ROP
If you like the idea of getting money back from your term life, an ROP – Return of Premium policy may be a good fit.
With the ROP term, the life insurer refunds all premiums you paid at the end of the term.
ROP may sound like a good deal (and it can be at times) but keep in mind that your ROP will be more expensive.
Underwriting
Underwriting for most life insurance policy types is similar, although…
Some policies may allow you to skip the life insurance medical exam.
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FAQ
Term insurance is temporary insurance, providing life insurance for a specified duration of time, while whole life insurance builds cash value and has the potential to last a lifetime if it performs as initially illustrated.
No, term life insurance does not have a cash value. There are some term life policies that offer a return of your premium if you cancel those types of policies at a later date.
Group term life insurance is the coverage offered by your employer. Most employers have a base amount of life insurance offered to all employees, and a supplemental amount of life insurance that employees may purchase subject to the rules.
You may be able to sell your term life insurance policy if you are older (age 65+), the policy has a conversion privilege available, and your health has declined since you bought the policy. It’s called a life settlement.
Term life insurance is not taxable for the vast majority of situations. There are some instances (typically for business insurance cases) where they may be a tax question. Always consult your accountant for tax advice.
Michael Horbal
Author
Michael Horbal is the founder and owner of RiskQuoter.com and a licensed life insurance agent who has helped thousands with affordable protection for families and businesses.
