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Understanding the basics of Term Insurance

Term insurance is straightforward, providing coverage for a set number of years. Typically, term insurance coverage ranges from 5-30 years but can vary depending on the insurance company you purchase from. The length of a policy is determined between your insurance agent and yourself by finding the best solution for your needs.

Is term insurance the right fit for me?

Term insurance is best for those who need coverage but are tight on money and for those who only need coverage for a certain amount of years (i.e., to cover a 30-year mortgage). It provides the most coverage for the lowest premium, meaning you get more for your money. Unlike permanent insurance, there is no cash component, so you won’t have the ability to gain or borrow cash from the policy. You can convert to permanent insurance if your policy allows, so check with your agent!

Types of Term Insurance

Convertible Term: Term insurance that allows the policy owner to convert their policy to permanent insurance without undergoing underwriting, submitting medical exams, or health condition history.

Increasing Term: Term insurance that allows the policy owner to increase the death benefit with time. As the death benefit increases, so do the premium payments.

Decreasing Term/Mortgage Term: Term insurance that decreases over time. Decreasing term insurance is often called Mortgage term because it works to cover the risk of your mortgage if you pass away during that period. The downside is that although premiums are smaller than straight term, the premiums remain constant even though the death benefit declines.

Annual Renewable Term: Term insurance that increases each renewable year. The benefit of the Annual Renewable Term is that the coverage is guaranteed to be approved each year. However, the premiums will also increase too.

Choosing the type of life insurance you need is like picking a new phone. Life insurance policies have many different bells and whistles, each with its own set of unique features.

As an overview, there are two main brands of life insurance: Permanent and Term. Permanent insurance is the oldest type of life insurance and is an umbrella term for life insurance policies that do not expire — think of it as the Bell Telephone, the oldest telephone in the world. Under permanent insurance, there are two main types: whole life and universal life. Permanent insurance offers both a death benefit and cash value.

What is Whole Life?

A whole life permanent policy is the most common type of insurance and is meant to provide protection throughout your lifetime. A key feature of a whole life permanent policy is the ability for the policy to build cash value, which can be used however you want. The cash value is guaranteed to grow based on a calculated amount based by the insurance company, such as 3% interest per year. In general, whole life policies are the least risky since cash value accumulation is guaranteed.

What is Universal Life?

Universal life insurance is increasing in popularity and is more flexible than a whole life policy. Universal life insurance policies provide flexibility but can be confusing at times; however, the benefits are impressive. It allows you to adjust your premium payments and death benefit amount. Universal life insurance offers the ability for the policy to build cash value — this cash value is based on market index performance, such as the S&P 500. The cash value accumulation is not guaranteed.

Types of Universal Life Insurance

Under the universal life insurance branch there is Indexed Universal Life, Guaranteed Universal Life, and Variable Universal Life.