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Posted: 1 Oct

Term Life Insurance Basics You Should Know Before Deciding on Policy

Term Life Insurance Basics You Should Know Before Deciding on Policy

Term life insurance is one of the two life insurance policies the cheapest and most basic of the two. With term life insurance, the policyholder signs a contract with a policy provider who agrees to pay a given amount as a death benefit. i.e., if the policyholder passes away while still covered.  In other words, term life insurance isn’t permanent. You can choose a coverage period (or term) often between 10 to 30 years, with the option for renewal. It’s also possible to convert term life insurance into permanent life insurance. Something to note with term life insurance is that it doesn’t have a cash value, meaning you get no payout once the term expires. To learn more about term life insurance and find a policy that’s right for you, call a Vistaplan broker today!

With most policies, there’s no other value except a death benefit paid to the beneficiaries you named in the contract. To get started with a term life insurance policy, you have to make an application. The premium you will pay each month depends on various factors determined through an underwriting process. Factors like occupation, health, age, lifestyle, and hobbies all play a role in determining your specific rates. 

Types of Term Life Insurance 

Typically, there are many types of term life insurance policies to suit the unique needs of every policyholder. Each of these policies has its unique pros and cons, and it’s up to you to keenly analyze what each policy means to your monthly contributions and the value you get in the long run. Here are the common types of term life policies:

Level Term Life Insurance. The policy maintains the same death benefit and premium throughout the policy term. As you age, the rates won’t increase, allowing you to accurately and confidently plan for the monthly payments. It’s an ideal choice for someone who values consistency and predictability.

Mortgage Term Life Insurance. The policy is explicitly purchased to cover the mortgage once the policyholder passes away. With this policy type, the death benefit decreases as the mortgage reduces. And while the beneficiaries may have no extra cash left to cover living costs and expenses, it ensures the family has a clear title to the home once the policyholder dies. The premiums may stay about the level or increase slightly over time.

Yearly Renewable Term life insurance. Here, the death benefits stay level, but the monthly premiums increase as you age. Most of these plans offer premiums that increase until age 75 before expiring. And depending on what you choose, the premiums may increase yearly for 20 years, after which they increase every five years until the age of 75. 

5 to 30-Year Term Insurance. With these policies, the death benefit stays level to age 80, after which the coverage terminates. Ideally, the longer the policy term, the greater the increase in monthly premiums for the next term.

Term Life to 100. Unlike the other term life policies, this one has a death benefit that stays level to age 100 and won’t terminate until and unless you do. The monthly premiums also stay the same to age 100.

Return of Premium Term Life Insurance. This policy promises to refund a portion, or all the premiums paid if you live beyond the policy term. So instead of the policy terminating and getting nothing from it, the policy provider pays you back the premium. Such an arrangement makes the policy quite expensive and is offered by a few insurance companies. 

Choosing one of the above life insurance policies can be daunting. It requires a keen understanding of the life insurance markets, the risks, the loopholes, and everything in between. Working with an experienced insurance advisor is advisable to ensure you are getting the best value for your money.

Why Go for Your Term Life Insurance Sooner 

As you would have known, the coverage amount you want, and the term length affect your monthly premiums. The other factors that also affect the quotes you get from your insurance company include age, height, weight, gender, family health history, history of substance abuse, marijuana use, criminal history, driving record, credit, etc.

The sooner you realize you need life insurance coverage, the faster you should act. Ideally, the longer you wait, the higher the chances that the above mentioned factors will work against you. Here are the reasons you should get your coverage sooner.

Affordability  

When you are younger, the term life insurance premiums are relatively cheaper. This is mainly because you are more likely to be healthy in your twenties than in your fifties; hence you are considered less risky. You will also get a head start with lower premiums and maintain them as financial obligations set in. 

Simplicity 

A term life insurance policy is a perfect place to start for someone with no coverage. With the right policy, you will immediately protect your family while paying a low premium and learning more about your coverage needs as time passes. If you need to change the policy, later on, you’ll speak with your insurance provider and switch your policy plan.   

It Supplements the Employer Insurance Policy

If you already have an employer insurance cover, a term life insurance policy will help you fill the gaps and ensure comprehensive coverage. For instance, your employer plan is likely up to twice your salary. However, it is not enough to cover the kids through college, afford them a quality life after retirement or even pay the mortgage after your demise. This is where a policy like a mortgage term life comes in. 

It Affords You Some Peace of Mind

As a young person with fewer responsibilities, purchasing term life insurance sets you ahead of the game. You’ll enjoy lower premiums for decades while still catching up with other responsibilities, such as growing a business or starting a family. Before the term expires, you can easily renew the policy or switch to permanent life insurance. 

Myths about Life Insurance 

Most people fail to seek life insurance coverage because they have some myths and misconceptions holding them back. It’s not uncommon and reasonably possible for people to grow into their fifties without coverage. Still, it’s not surprising to find a 20-year-old fully subscribed to an insurance plan. It mainly comes down to who has access to the correct information. Here are some myths about life insurance you must demystify before looking for a life insurance plan:

Life Insurance is expensive. A life insurance policy is leverage to financial freedom, especially after retirement, a disability, or for your beneficiaries. It only becomes expensive if you cancel the policy after paying it for years or let the insurance company keep the premiums. 

Life Insurance is for old or sick people. This is not true. Life insurance is for everyone; the younger you are, the cheaper the premiums.

If you are old or sick, you don’t qualify. The rates may be slightly higher if you are old or have a pre-existing condition, but these factors don’t lock you out of coverage.

Investing in a business is more profitable than putting money into life insurance. This is the wrong way of comparing two different investment vehicles. Investing in a business is a win-or-lose scenario. Life insurance offers guaranteed returns, plus old age and death are more certain than profits. 

Make the Right Choices Today 

Purchasing a term life insurance policy is one of those decisions that may seem petty or unnecessary but is of utmost importance to everyone. If you were to stop and think about your life and all that can happen – in your career, business, finances, relationship, health, etc., and what that would mean financially to you and your loved ones, you’d quickly have a mindset shift. 

Get in touch with our expert life insurance advisor to discuss your unique coverage needs and how you can find the best policy that meets your expectations. 


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About the Author - David Motkoski

David Motkoski—At the Helm of Vistaplan Financial Group

David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance products they are purchasing, so they can make the right choices for their budgets, plans, and futures. CONNECT WITH ME ON LINKEDIN

Life & Disability Insurance for Alberta Health Care Professionals, Business Owners, and Their Families Since 1983