6 Types of Term Life Insurance

by | Mar 14, 2021 | Billsaver, Term Life Insurance

Did you know that there are different types of term life insurance policies you can apply for? Many insurance companies will offer term life insurance without putting it into a category, but that doesn’t mean they are all created equal. You have to assess the policy details to determine what type of life insurance you are getting.

Let’s take a look at six types of term life insurance so you can see what’s best for you.

Renewable Term Life Insurance

Renewable term life insurance can be renewed at the end of the term without any major changes in a person’s application. The premiums for the policy will increase after the renewal. How much they increase will depend on how long the old term lasted and how long the new one will last. Renewable policies are great because they essentially guarantee your coverage for life. As long as you renew when the time comes, you’re set.

Convertible Term Life Insurance

Convertible term life insurance can be converted to a permanent life insurance policy during a certain part of the term. Whole and universal life insurance policies often require more examinations during the application process, but a conversion allows customers to skip over that. You can move into an investment-driven insurance policy without going through additional exams as long as you do so within the conversion period.

Level Term Life Insurance

This is the most common form of term life insurance available. With level insurance, your premiums and coverage amount do not change throughout the duration of your policy. If you get a $10,000 policy with $12 premiums for 20 years, you’ll pay $12 for $10,000 in coverage from year one to year twenty. If you want something that is predictable, reliable, and effective, you cannot go wrong with a level term life insurance policy.

Decreasing Term Life Insurance

Decreasing term life insurance reduces the amount of coverage you earn over time. Your premiums remain the same throughout the term, but your death benefit goes down with each passing year. This may not seem like a good deal, but it usually brings about lower premiums than a level term life insurance policy. It works well for people who plan to minimize their financial obligations in the future. Applicants who currently have a mortgage may not have one in the next 15 years. Thus they may be comfortable with a drop in coverage after that time.

Annual Renewable Term Life Insurance

Annual renewable term life insurance is the opposite of decreasing insurance. It keeps the death benefit the same but increases the premium with each year. This is a branch of renewable policies, but the renewal date comes once a year. This policy works well for those who expect to see increases in their income over time or who are able to free up extra money in the future. Their premiums will start off very low, but they will eventually be much higher than those of a level term policy.

Return of Premium Term Life Insurance

The “Return of Premium” is a type of policy where you may get back all or a portion of the premiums for your life insurance. Some insurance companies use this as a tactic to bring in new customers. This is a great plan for younger clients under 40 looking for a solution. The insured has to see the term to expiration or the funds will not be returned. Also, it is different from traditional term. With Return of Premium, the longer the coverage typically, the more competitive the rate.

Other Options to Consider

You can somewhat change the type of term life insurance you have by adjusting the frequency of your premiums. Most insurance companies will offer a discount if you pay for a full year’s worth of insurance at once. Others offer the same rates no matter how you divvy your payments. Assess different payment structures to see which one will work best for you. It is something to consider. The difference may not be but $25 a year, but over a span of 20 years, that would be $ 500 and potentiall equal to a year’s worth of premium in savings.

You may also consider changing the value of your death benefit before your term is over. Your premiums will increase, but you won’t have to go through a lengthy application process again.  Although you have a better idea of the rates you will have, you are not locked in. When the term expires, you can continue paying the new rates without going through Underwriting again but each year, those rates will go up. The client should check their policy premium schedule that is included with each policy to know the premium changes that can occur.

Think carefully before cancelling your term life insurance policy because you will pay more for it after you renew. You will never get rates as low as you have right now, and you may even have a cancellation fee to pay. Assess the six types of term life insurance discussed above and see which ones are suited for your needs. Then stick with your policy as long as possible.