Types of Term Life Insurance
Posted by Lenny Robbins on Tue, Feb 22, 2011 @ 04:53 AM
Term life insurance is intended to provide insurance for a specified period of years. The premiums are less expensive than permanent insurance. In addition, there is no cash accumulation in a term policy which helps to keep prices down.
Guaranteed premium level term insurance has a premium and death benefit that does not change for the specified term. (This is also called level term insurance.)
You can purchase a term policy with level premiums for 5, 10, 15, 20, 25 and 30 years (depending on your age). Since most companies offer 10, 15, 20 and 30 year plans, these terms will have more competitive pricing.
The cost of insurance per thousand dollars decreases at $250,000 and $1,000,000. Because of the “volume” discount, you may find that a $250,000 policy will cost about the same as or even less than a $200,000 policy.
Most term policies offer a conversion option for a limited time in which you can convert a term policy into permanent coverage without underwriting or a medical exam. These options vary from one company to another, so be sure to check with your agent about which companies have good choices. If your health changes significantly, you may want to exercise this option in the future.
Decreasing term life insurance is also called mortgage insurance. The premium remains the same, but the death benefit decreases every year.
This type of insurance is often sold to protect a mortgage. The policies are rarely a good option due to premium cost and lack of flexibility. Furthermore, premiums are usually higher than policies without a declining death benefit. If the premium is comparable, level term gives you more for your money.
Renewable term life insurance is in force for a specified time, usually 1 to 5 years. After the term the insured has to “renew” the policy for another term. Each time the policy is renewed the premium will go up.
Return of Premium (ROP) Term Life Insurance is a kind of life insurance that will return your paid premiums at the end of the term if you outlive your policy. ROP policies have significantly higher in cost than level policies and must be kept for the full term to receive a complete return of premiums paid.
The Bottom Line: There are several different types of term life insurance.
Be sure to speak with an independent agent regarding which type of insurance is best for you. The agent will represent numerous insurance carriers and have more options available to you.