Term Life Insurance
Term life is the simplest type of life insurance plan. It is only good for a term or a period of time and therefore can be easily compared to renting or leasing. So while you pay your premiums to protect your beneficiaries for a term, usually 10, 15, 20 or 30 years, at the end of it if you are still alive, all the premiums you paid are gone. But term life insurance is the least expensive kind of life insurance coverage you can get to protect your loved one. It offers the most protection for the least premium.
Most people buy it because they have a mortgage to protect, young children, some loan or simply because they could not afford or find value in a permanent life insurance plan. The premium of your term life insurance plan remains the same during the duration of the term.
Most Term Life Insurance Plans are Renewable and Convertible
It is almost impossible for most people to renew their term policies at the end of the term. It is simply because renewing is way too expensive an option and in most cases a bad idea. However, the conversion option in a term life insurance plan is something that later in life goes in your favor. This option allows the insured to covert a term life plan to a permanent life (universal or whole life) without having to re-qualify medically. So, as an example, if you buy a term insurance today and 10 years down the lane you suffer a heart attack, you will not have to explain anything to your insurance carrier to convert your policy. All you will do is to sign a new form and pay a higher premium based on the kind of universal or whole life plan you select.
It is important to note that you don’t have to covert the entire face amount of your term policy. You can do a partial conversion as well.
There is also another option in Term life. It is called Return of Premium Term (ROP), which costs more to get the same coverage. But at the end of the term instead of losing all the premiums to the insurance carrier, the insured walks away with a refund of all premiums minus any loans.
EXAMPLE OF COST DIFFERENCE
Traditional Term Life versus Return of Premium Term
A 45 years old male can obtain a traditional 30-year term coverage of $500,000 for only $82.69 per month. At the same preferred plus, non-smoker risk, the return of premium term will cost him $179.96 instead.
So, in the first option, you end up gaining protection for your loved ones for a total of $29,768.40 over a period of 30 years. In the second option, you spend $35,017.20 more to get the same coverage. The main difference is that under the return of premium life insurance option, at the end of the term you will walk away with a refund of $64,785.60. And ladies, yes, you always pay less premium because according to mortality index you tend to live longer and the actuaries favor you while establishing premium charts.
DON’T FORGET THE LIFE INSURANCE RIDERS
Free and Optional Riders (subject to age and state availability)
- Terminal Illness Rider or Accelerated Benefit Rider
This is almost always a free rider that most insurance carriers offer. It comes to your rescue if a medical doctor diagnoses you with a terminal illness and gives you only between 12 months to 24 months (depending on the state) to live. ADB rider lets you have a portion, usually up to 75% of the death benefit while you are still alive. You can use this amount whichever way you like.
- Waiver of Premium Rider
This rider comes at a cost and provides a waiver of premium if you become totally disabled. It covers you for a certain number of years. If you decide to add this rider to your life insurance policy, please make sure to understand it completely.
- Accidental Death Benefit Rider or Double Indemnity Rider (ADB)
This rider can pay up to double the face amount of the original policy if the death occurs due to an accident. Death during an act of war, illegal activities or death due to a self-inflicted injury is not covered. Please check all the limitations before taking this rider.
- Child Term Insurance Rider
This coverage allows the parents to purchase small amounts of life insurance for their kids without any hassle. The ages covered are typically between 15 days to about 18-21 years, depending on the carrier. One of the benefits of this rider is that it is relatively inexpensive and covers all kids in the house for a small premium. Many carriers allow conversion of the face amount of this rider for up to 5 times the original coverage at the time when the kid matures without any underwriting involved.
- Critical Illness Insurance Rider
The three primary critical illnesses include cancer, heart attack, and stroke.
Critical illness insurance policies may also cover such conditions as:
Coronary bypass surgery
Kidney (Renal) failure
Major organ transplant
It is usually not the illness that destroys a family but the bills do. Critical Illness Rider offers tax-free proceeds in a lump-sum when needed and you can use it whichever way you like.
- Long-Term Care Rider
A Long-Term Care rider covers care and services in case you are unable to take care of the “basic activities of daily living,” such as getting dressed, getting in and out of bed, using the bathroom, bathing, and grooming, eating, and walking, among other activities due to disabling physical, or cognitive conditions. The form of care can also include in-home care, nursing home care, adult day care, and long-term care facilities, among others.
Always ask your insurance adviser on the availability of riders before you take a life insurance policy.