What is Term Life Insurance?
Term life insurance provides death benefit protection for a limited period of time. It is also the least expensive and easiest type of insurance to get. Because they are less expensive than permanent life insurance policies, term life insurance policies are a good value because you can get more insurance for your money.
The word “term” relates to the duration (from one to thirty years) of a specific life insurance policy. A policy owner makes payments called premiums during the term of the policy.
In the event that the insured dies during the policy’s term of coverage, the policy’s beneficiary receives an indemnity called a death benefit ending the policy. If the insured outlives the policy length, the insurance company pays no death benefit. This is the main difference between term life insurance and a permanent life insurance policy in which an individual can maintain his/her coverage for as long as it takes to get a death benefit.
1 Year Term
One year term life insurance or annual renewable term insurance provides a death benefit for a very low premium for just one year. Although it can be renewed annually, there is a premium increase each year if you choose to do so. Usually for the first five years, even with an increase, the premiums are still quite inexpensive. After that time frame, the premiums can actually become quite a bit more expensive.
5 Year Term
The 5 year term life insurance policy is often considered a better value than a one year term policy. The reason for this is that even though the premiums cost a bit more, the policy has a level death benefit and the premiums remain level for the entire 5 years. A 5 year term policy can be purchased on its own and is also a good choice as a rider to a permanent policy to cover short term financial needs such debts that your loved ones will have to incur in the event of your death.
10 Year Term
A 10 year term policy is another inexpensive and fairly short term policy. A 10 year term policy is often the most popular choice among term life insurance plans because it is less expensive than a longer policy. However it can end up being more costly in the long run to buy a policy of a shorter duration as the premiums and insurability are guaranteed to go up with age and declining health if you choose to purchase subsequent policies in the future.
15 Year, 20 Year, 25 Year And 30 Year Term
Your best value for life insurance coverage is to invest in a policy that will provide coverage for as long as the need for life insurance exists. The main difference between policies of different lengths is that a longer term policy can be kept for a longer period of time. The face amounts and premiums remain level throughout the policy regardless of which length of policy you choose.
With any of the term life insurance policies, the death benefit / face amount will be paid to your beneficiaries upon your death, with the exception of suicide within the first two years of the policy. This is referred to as the incontestability period, which is in effect for 2 years from the”in-force” date of policy.
Riders are something that can be added to a life insurance policy. Most life insurance companies allow you to add an accidental death benefit rider to the policy. This provides that if you should die in an accident the life insurance company will pay your beneficiaries double the basic death benefit. If your policy is for $100,000 the insurance company will pay out $200,000 to your beneficiaries. This is called double indemnity. A Waiver of premiums rider provides that the insurance company would cover your premium costs if you should become disabled. Usually there is a minimum period of more than 6 months for this to go into effect but would cover your premiums for as long as you are disabled, even if it is for the rest of your life.
What happens when my term policy has ended?
You have several options to choose from when you reach the end of your term life insurance policy.
First of all you can choose to let the policy lapse and be done with it. You would pay no more premiums and have no more coverage. If you want to extend your coverage beyond the limits of the policy, some insurers will allow you to purchase a new term life insurance policy without having to go through the process of re-applying and proving your present insurability. In most cases your new policy will have a term, rate class, and face value that will remain the same as the previous policy. So, if you had “preferred plus” with your old policy, you will get “preferred plus” with the new one. This does not guarantee that the rates will remain the same as before. Your new rate will reflect your current age even though your rate class will stay the same.
As another option, you can choose to convert your expired term life insurance policy into a permanent life insurance policy. Each insurance company offers different options for this. The options available can vary from company to company but it is industry standard for life insurance companies to offer conversion options. You can only choose from the options available through your insurer at the time your term coverage expires.
You can also choose to shop for an entirely new policy that meets your needs. We would be more than happy to assist you in evaluating your circumstances and help you in making the right decision for your present needs.
Accidental Death Insurance
An Accidental Death and Dismemberment Insurance policy can be purchased on its own or as a rider to an existing life insurance policy. It is designed to provide a benefit in the event of an accident. An ADD insurance policy does not require a medical exam and can be purchased when traveling or participating in certain activities.
What is the likelihood that you will die in an accident? National Center for Health Statistics report says that age is also a factor in the leading causes of accidental death. If you are a 35-year-old nonsmoking male, you are four times as likely to die in an accident before age 45 than you are to die from heart disease. If you are a woman of the same age, you are twice as likely to die in an accident as from breast cancer. Many staggering statistics indicate that the likelihood is far greater than you might imagine. Below are listed the top 10 causes of accidental death.
500 deaths a year (There is about a 1 in 10,000 chance you will be accidentally electrocuted.)
9) Hit by a car
1,100 deaths a year
8) Firearm discharge
1,500 deaths a year
7) Complications during Surgery
3,000 deaths a year
3,200 deaths a year
3,500 deaths a year
3,700 deaths a year (You have a 1 in 1000 chance of dying from smoke inhalation or other fire related accidents)
9,500 deaths a year
1,500 deaths a year
1) Car Crash
44,000 deaths a year (This equates to 120 deaths a day and 5 deaths an hour in a car crash)
Based on the above statistics it makes a lot of sense to consider adding an accidental death and dismemberment policy as a rider to an existing life insurance policy or at a minimum to carry an accidental death and dismemberment policy on its own.