Term Life Insurance Information

Why Buy Life Insurance?

If you have family members, a spouse or significant other that depends on your income, then you should think about purchasing life insurance. Life insurance provides essential financial protection for those who you care about the most. The proceeds, or death benefit, from a life insurance policy can

• replace the income lost to your family
• pay off debts and expenses
• fund a favorite charity
• cover final and estate expenses
• provide needed cash to business partners

Life insurance policies receive favorable tax treatment. The proceeds payable at your death generally will be income tax-free to your beneficiaries.

What is life insurance?
Life insurance provides a way to replace the loss of income that occurs when someone dies. It is a contract between you as the insured person and the company or carrier that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money, usually called a death benefit, free of income tax to the person or persons you name as beneficiaries. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction.

How much life insurance do I need?
The amount of life insurance you buy should replace more than just the loss of income that occurs if you die. It should also provide money to cover the funeral expenses, inheritance taxes, probate costs, the need for housekeepers and child care, etc. The amount should also be calculated to provide for your family's future needs as well, including college education for your children and part or all of your spouse's retirement needs.

What is term life insurance?
Term life insurance is the most straightforward type of life insurance and the easiest to understand. Sometimes it is called pure insurance, since the policy has no financial investment value and most of your premium goes to pay for coverage, with only a small amount used to pay the term life insurance company's costs. Term life insurance typically will give you the most bang for your buck.

What is the difference between term life insurance
and other types of life insurance?
There are two types of life insurance: temporary and permanent. Term life insurance is considered temporary life insurance because it provides coverage for a specific period of time or term. If death occurs during the term, the policy pays cash benefits to the beneficiary. However, once the term is over, and if the policy is not renewed, the coverage ceases. If death occurs after the coverage ceases, no cash benefits are paid out.

Permanent life insurance can include whole term life insurance, universal life insurance and variable life insurance. This type has a cash value that you can obtain by cashing out the policy or by borrowing against it. Though it can seem attractive, most financial experts agree that this feature should be seen as a secondary purpose of life insurance.

Because term life insurance premiums are generally lower than permanent insurance premiums, you can usually afford a higher level of coverage.

What are the different types of term life insurance available?

The different types are as follows:

Annual Renewable Term Life Insurance
is automatically renewable each year up to a specific age limit (usually 65, but sometimes older). Since the chances of your dying increase statistically the older you get, your premiums go up each year as you renew. If you buy your life insurance policy when you are young and unlikely to die, you can obtain substantial coverage for an inexpensive premium.

Renewable Term Life Insurance
automatically allows you to renew your coverage after the term of the policy is over (generally 5 to 20 years), even if your health has deteriorated. This is the same way annual renewable works, but for a longer period of time. Since a lot can happen to your health in 5 or 20 years, renew ability can be a valuable feature. But since it involves a greater financial risk for the carrier, renewable term coverage generally costs more than annual renewable policies. The conditions associated with renewable term may differ from company to company. For example, though you are guaranteed the right to renew at the end of your term, you may or may not be able to renew for the same amount of coverage or for the same term. Your premiums will almost definitely go up upon renewal.

Level Term Life Insurance
guarantees your premium will stay the same each year for the term of your term life insurance policy, generally 5 to 20 years. Term life insurance companies keep your premiums the same by charging you an average of the premiums they would ordinarily charge you with an annual renewable policy. Therefore, you will probably pay more in the early years and less in the later years than you would if you had an annual renewable policy. You will probably also encounter a big increase in premiums at the end of your term when you apply for a new insurance policy. The big advantage of level term is that your premiums stay the same throughout your policy, even as you get older. However, if for some reason you change policies in the early years, when your level term policy is most expensive, you will end up paying more than you need to for coverage.

Decreasing Term Life Insurance
features a decrease in your cash benefits each year while your premiums remain level for the duration of the term. Decreasing term is typically used for mortgage payment protection insurance or to cover other items whose costs decrease over time. It isn't a wise choice for your general life insurance needs which due to the effects of inflation, tend to increase over time.

Convertible Term Life Insurance
enables you to convert your term insurance into any of the other types of insurance policies offered by the issuing insurance company. Convertibility can be an advantage if your insurance needs change over time, as they are likely to do. And, since it involves greater risk for the insurance company, it generally costs more than annual renewable term.

Do I have to take a medical exam to qualify for term life insurance?
In most cases, an exam is required. If so, the insurer will pay the costs and have it done at a time and place convenient for you ý often right in your home. Some insurance companies require a medical exam for all policies, but others require the exams only for policies with a substantial face value. The examination is basic, covering your height, weight, medical history, and blood and urine testing. With the blood and urine tests, the insurer looks for specific medical problems. Positive results could affect your premium, or even your ability to buy a policy.

What lengths of terms are offered for term life insurance?
Most often, the terms offered are 1, 5, 10, 15 or 20 years. Some term life insurance companies offer longer terms of 25 and 30 years.

What term is right for me?
It depends on how old your children are, how many years before you retire, and other factors. Many like the security of being insured up until their retirement, usually at age 65. Others prefer to remain covered only until their youngest child graduates or leaves school, and so they make sure their term life insurance coverage includes money to pay for all college tuition or other educational expenses.

Most experts agree that you should carry insurance at least until your youngest child is 18. So if your youngest child is 3-years-old now, you would want to carry your insurance for at least 15 years. But that doesn't mean you have to lock into a 15-year term. You could instead buy an annual renewable policy and renew it for 14 years in a row. You should compare the total 15-year cost of the annual renewable policy and the 15-year term policy, making adjustments for the time and value of money, to determine what the best value is for you.

What happens when the term is over?
It all depends on the type of term life insurance you have. With renewable term, you are guaranteed the right to take out another term policy without the formality of a new application or medical examination. With standard term, your insurance coverage ceases, and you have to apply again, including taking a medical examination. With convertible term, you reserve the right to convert your term policy to another type of policy, such as whole life or universal life or in some cases, another term policy at any time during the term of your policy. You should, however, expect an increase in your premiums with your new policy.

What is the difference between guaranteed and non-guaranteed premiums?
If a term life insurance policy offers level term, it is usually one of two types. The first type is guaranteed premium level term, which the premiums are guaranteed to remain level during the entire term of the policy. The second type is non-guaranteed premium level term policy, which the premiums are only guaranteed for a portion of the term period. Most of the time, the partial guarantee runs 5 or 10 years. In this kind of policy the insurance company reserves the right to raise premiums under certain conditions.

How will my premium be determined?
Age, height, weight, past and present medical conditions, family medical condition history and lifestyle can all affect the determination of your premium. The choices you make regarding coverage, such as length of term and guaranteed premiums, will also affect the amount you will pay.

What does the term life insurance application process involve?
Once you've compared the term life insurance online quotes and reviewed the terms of coverage, select the most competitive term life insurance policy that best suits your needs by clicking on the buy button. You will then be asked to fill out a brief online application, which includes your contact information. Your information will be kept private (see our privacy policy).
After your application is received, a licensed agent from Design Benefits Group will contact you. If a medical exam is required by the term life insurance company you have chosen, the agent will set up a convenient appointment for the no-charge exam. The medical exam can take place in your home or office, and is performed by a medical professional.

Upon completion of the application and medical exam (if required), the agent will submit the information to the term life insurance company. Four to eight weeks are required for most companies to underwrite and issue the policy.

Why Buy Term Life Insurance?

Term life insurance is the least complicated type of life insurance you can buy. Term life insurance rates are also the most affordable.

Term life insurance differs from whole life insurance, universal life insurance and variable life insurance in that it provides you with coverage for a specific period of time and pays a specific dollar benefit upon death. In most cases, term life insurance is all you'll ever need.

Unlike other types, term life insurance has no cash value, savings or investment elements that procure administrative costs and require higher premiums. That's why a term life insurance rate is usually lower than other types of life insurance.

"Buy term and invest the difference! Term insurance is a bargain, no doubt about it".

David Chilton,
author of the best-selling book featured on PBS,
The Wealthy Barber: Everyone's Commonsense Guide to Becoming Financially Independent.