Term Life Insurance, What is it?
Term life insurance is probably the simplest type of life insurance to understand and the most affordable (at least in the early years). That may be a main reason why it is the most popular. Another top reason is price. Since term life insurance is pure insurance (no cash value component) it makes it the cheapest per $1,000 of coverage. It also allows someone to get a lot of coverage for a small payment (assuming the person is in good health). It has also been called temporary need life insurance or sometimes bridge over life insurance.
What are your choices and options for term life insurance plans?
Term life insurance offers at least six rate guarantee length: The 10 year term life insurance, The 15 year term life insurance, the 20 year term life insurance and 30 year term life insurance plan. These are the four most common term life insurance plans. Two others, not nearly as popular, are the 25 year term life insurance and the 40 year term life insurance plans. These last two seem to be most commonly used with mortgage term life insurance.
The Importance of the Rate Guarantee of Term Life Insurance
If you were to select a 20 year term life insurance plan, what that simply would mean is that for the first 20 years your payments would be projected or guaranteed to remain the same. Notice that we wrote projected or guaranteed as in some cases, rates are not guaranteed for the full term (20 years) so beware. We personally feel that you should always get a term life insurance plan that guarantees your rates for the entire period you need to cover (in this example 20 years.) Yes, some none-guaranteed term life insurance plans can be cheaper to start with, but that can be a great mistake when you see your rates go up, before your 20 years are over. Rates can change so drastically that you may have to get a whole new plan because your rates have gone too high (if you can still qualify)
Whether you get a guaranteed or non-guaranteed term life insurance plan, in this example, after the 20 year period, your rates will go up. Sometimes your rates will go up more than five times the original price. So you better make sure that you get the length of coverage you most likely need or that at least make sure that you have options if you need to make changes to your term life insurance plan later. Of course, we can help you with that - please juts ask us. More on selecting a term life insurance plan.
term life insurance with Return of Premium Rider or ROP Rider
That is a very popular plan. This plan allows you to receive some or all of the premiums you paid at he end of the term period you selected such 15, 20 or 30 years. Again, if you select the 20 year term life insurance plan and add the Return of Premium rider (ROP Rider), at the end of 20 years you would receive a partial or a complete refund of all premiums paid (most times it is a complete refund).
You may say that it seems to good to be true (as many clients have said.) How does the insurance company make money if you get back all the money you paid? Don't worry about them, they do just fine. And the companies that offer these plans are not new to this. They have been in business for many many years and many have high financial ratings.
The decreasing term life insurance plan
As its name indicates, it is a plan where the insurance decreases every year until it reaches zero life insurance coverage. It can run for 15, 20 or 30 years. The deceasing term life insurance plan is often thought of when needing to cover a mortgage loan. It is rarely a good plan to select for any insurance needs and most always this decreasing term life insurance plan is more expensive than the level term life insurance plans mentioned above.
Besides, why would you want you insurance to go down? In most cases your life insurance needs will go up not down. Need an example? You buy a house for $300,000. You keep it for seven years (the average). Now you want to move to another, better house. So you buy a house for $500,000. Need we say more? You should also know that with the decreasing term life insurance plan your payments remain the same throughout the term period! They are often NOT guaranteed for the full term! more
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Brochure: protective term
