October 4, 2022
Term Life 101
Life Insurance can be a daunting subject for most people. No one likes thinking about death, and understanding different policy types can seem confusing, but let’s face it: life is unpredictable. We purchase life insurance not because we’re going to die, but because those we love will continue to live! No matter how old you are, having the right policy in place to protect your family if the unexpected happens is essential. There are two main types of life insurance: term life and whole life. Here are some term life insurance basics!
What Is a Term Policy?
A term policy can be thought of as a “rented” policy only needed for a certain period, typically lasting for periods or “terms” of 10, 20, and 30 years. Because of this coverage length and the fact that it provides only a death benefit, most consumers can expect higher-dollar coverage amounts for much less than the same amount of coverage from a whole life policy. Monthly payments are usually “level,” meaning they do not fluctuate or change during the initial policy period. If the insured were to pass in the 10, 20, or 30 years that their policy provides for, their family would receive the policy’s value. However, once the term ends, so does the policy and its coverage. Most companies do not offer term policies to anyone over age 65 since it is not an appropriate product for that stage of life.
Why Term Life And Not Whole Life?
Term policies provide for temporary needs or short-term financial obligations. A licensed agent will ask questions to assess whether the goal is to cover one of two types of need: a temporary/short-term need (term) or a permanent need. Temporary needs could include a mortgage payment, taking out a loan, raising children and supporting them through college, or providing income for our spouse before retirement. If what you’re trying to protect has an expiration date, a term policy may be your best solution. An example could be someone who recently bought a home for $300,000 and took out a 30-year mortgage. If something happened to them before paying off the mortgage, a term policy for 30 years that matched the mortgage balance would help ensure the family’s home does not become a burden in an already difficult time of loss. Another example is a mother who wants to make sure the student loans she cosigned for her son to go to college do not become a burden on her son if she passes suddenly. A 15-year Term Policy for $60,000 could give not only the mother peace of mind that she is not burdening her son, but her son peace of mind that he can get through college without added debt.
Why Would I Want a Policy That EXPIRES?!
In our 20s, 30s, and 40s, we often buy our first homes, get married, and raise young families. There is a lot we could be leaving behind that would easily burden our families if the unexpected happened and the proper coverage was not in place. A term policy would provide coverage for a mortgage or debts to be paid off, income replacement for a spouse, or help ensure children can attend college. The need for high-dollar coverage will typically decrease as a family grows older and its needs change. At that time, the need for a term policy is no longer present.
Who Should NOT Buy a Term Policy?
Anyone dealing with complex health issues or age 60 or older with a permanent need like covering final expenses or leaving money to loved ones is best suited for a whole life policy. Life insurance rates are determined through age, health, and lifestyle factors. The price of an insurance policy is directly related to the proposed insured’s risk to the company of paying a death benefit. Buying a term life insurance policy at 60 or older could present several problems. If the insured outlives the policy term, they will have to shop for whole life insurance at an increased age to cover final expenses. That would lead to a significantly increased price and possibly health issues that add to that rate increase. It is a best practice to make all life insurance decisions by age 60 to avoid high premiums.
What Should I Look For in a Term Policy?
Level term: “Level” refers to the premium remaining constant. Don’t worry about paying different amounts each month! Once approved, you know the price you’ll pay each month, no matter what health challenges you may face.*
Renewability: “My term policy is about to expire! What now?” At BetterLife, you have the option to renew your term policy on an annual basis after the initial term ends with guaranteed renewability.** This means that even if you’ve had health challenges, you can renew your policy every year without having to go through exams or have health issues impact your rate!
Convertibility: “I paid off my mortgage, my kids are grown, and I paid my debt. I don’t need a term life policy for $200,000 anymore. I need a final expense policy!” ALL term policies at BetterLife come with guaranteed convertibility. That means if you don’t need term/temporary coverage anymore, you can convert it to a whole life policy (after the first year of the policy term) without going through medical questions!*** This means you can convert all or part of the death benefit to a whole life policy. At BetterLife, if you need a conversion after your first year, but before your sixth year of term coverage, you will receive “conversion credits.” These are payment credits equal to the current annual premium of the term policy applied to the new whole life policy. These could cover 3-6 months of payments on the new whole life policy!
“I have both permanent and temporary needs! What policy do I choose?”
You don’t have to choose! You can have different policies to address different needs. You may purchase a term policy when you buy your first home at age 30, but realize at age 55 you need to make sure your final expenses are taken care of if you pass after your term policy ends. You can have a term policy that ends when your mortgage ends, but will still be able to give your family peace of mind that no matter what, they will not have to pay out of pocket for your final expenses.
BetterLife is a different kind of life insurance company. Schedule an appointment with one of our expert agents to learn more about what makes us different and why you should become a member today!
*After renewing, premiums may increase every year based on age.
**Term Life policies can be renewed annually until age 95.
***Conversion must take place during the initial term period or until the insured’s attained the age of 70, whichever is earlier. The new policy may be any permanent life insurance plan BetterLife issues (with the exception of Joint UL) at that point in time (subject to the permanent policy’s minimum issue amounts).