Most people understand that term life insurance is a certain amount of coverage offered for a set amount of time, for one low price. When the specific term expires,, the entire insurance policy is null and void and a new one must be issued (for a new, higher premium) in order for the coverage to continue.
By offering a certain price for a short period of time, the company can offer lower premiums in the hope that the insurance will never be used. As the consumer grows older, the amount of insurance is generally decreased, while the premiums increase.
While the entire process may seem to benefit the insurer and not the policy holder (and ti does), the fact still remains that it is a good way for most people to afford the insurance they need; giving both themselves and their families peace of mind.
Many people prefer term life insurance because it offers an inexpensive way to purchase insurance during different seasons in life. But, did you know that within the term life insurance umbrellas, there are a variety of options to choose from? These options are good at helping consumers design a policy that will work best for them as individuals.
For those who are not familiar with the different types of term life insurance, here is a rundown of some of the most popular options available in today’s marketplace:
The Straight Term Policy
The most popular type of term life policy is called the straight term. As it name would imply, the straight term policy is a basic policy offering a set amount of insurance for a specific amount of time (usually 5, 7, 10, 15 or 20 years). In the event of the policy holders’ death, the person or persons named as the beneficiaries receives the amount listed on the policy.
The Decreased Term Policy
Another term life insurance policy available today is called the decreased term policy, which lowers the payout amount every year throughout the entire policy term. For instance, your policy may initially offer $500,000 in coverage for the first five years that you hold the policy, with it lowered to $400,000 for the next five years and $300,000 for the remainder of the policy term.
Why would someone agree to this type of policy? For one thing, it is cheaper, which allows the policy holder to have more insurance when they need it the most and less later on for the least amount of money. Plus, as you grow older, your needs for insurance change. For instance, when your children are young you need more coverage, but as they grow older and leave home, you need less. In addition, you will likely owe less money are your home after 10-15 years, making less insurance coverage workable for your spouse.
The Shared Term Policy
Do you and your spouse both have a term life insurance policy? If cost is keeping you both from getting the coverage that you need, then consider a shared policy. It works like this: you take a single policy for a set amount of money. It is good for both you and your spouse. If one of you were to die unrepentantly, the policy will pay just as a normal one would. Keep in mind though, that it only offers one payout. So, if you and your spouse were both to die, in lets say a car accident, your children would only receive one payoff amount – not two. Another thing to keep in mind is this: once the policy has been used, the surviving spouse will have to get their own policy in order to continue their own personal coverage.
The Annual Renewal Policy
Consumers who are young and healthy can often save big bucks by purchasing a renewable term life policy that increases its premium each calendar year. While the coverage remains the same, the company ahs the option of increasing your premium due to age and health issues. Also, they can ask for you to resubmit health information with each renewal which can hike those rates even more.
The Conversion Policy
Some Term Life policies come with a conversion clause, which allows the policy holder to convert their current term life policy into a permanent policy without having to go through the eligibility process again. This is a nice option to have for those who plan on keeping their policies for the long haul since renewing a term life policy after a few decades, which can be quite expensive.
True, term life insurance offers the easiest and most inexpensive way to get the coverage you need for your family. Now, with so many additional options available, consumers are not just roped into a certain policy offered by a company, but can choose the type of policy, amounts and even premiums they want and need.