One of the first decisions you should make when choosing a life insurance policy is the decision of what type you want to get; whole life or term life? A term life insurance policy can be exactly what some people are looking for. There are several types of these policies available, so you should consider the facts about each type before you choose term life over whole life insurance.
Guaranteed Level Term Life Insurance
Guaranteed level term life is the most common type of term life insurance. It is defined by yearly premiums that never increase during the life of the policy. The fact that the policy has a defined expiration is a clear drawback to this type of policy. Even though most policies have renewal clauses, these do not guarantee the ability to renew the policy. Whether or not renewal is available is dependent upon the wording of the policy.Level term life insurancepolicies, for the most part, last for 10, 20 or 30 years. The premiums will be higher each year for longer term policies.
Annual Renewable Term Life Insurance
An ART, or Annual Renewable Term policy is a short term life insurance policy that can be renewed every year for a defined length of time. When the policy is renewed, the premiums go up, increasing more and more dramatically after a period of 20 to 30 years. These increases will be explained in more detail shortly.
Return of Premium Term Life Insurance
This type of term life insurance has a special stipulation that guarantees to refund the life insurance premiums when the term period ends, assuming that the person insured is still living. These policies are typically available in 15, 20 or 30 year terms. While being pricier than a typical term life insurance policy, it is much less expensive than a whole life insurance policy and has similar advantages.
Decreasing Term Life Insurance
Decreasing term insurance is designed to pay a lower claim as the policy ages. Basically, the death benefit decreases throughout the period of the plan. While this type of coverage may at first sound odd, it is meant to insure people who currently have greater financial responsibilities that will decrease over time such as a mortgage or other large debts.
Modified Term Life Insurance
A modified term life insurance policy refers to a policy that utilizes an alternative payment structure to a standard life insurance plan but offers the same protection. These policies may have premiums that increase over time or be structured like a decreasing term life insurance plan where the payments decrease over time. These policies may help you afford the coverage you need but require planning and careful consideration of your own personal situation.
About those increasing rates, and disappearing benefits:
It happens that a term policy cannot be renewed or extended, the policy will expire if the policyholder lives longer than the terms of the policy and there will be no benefits paid. Non-renewable policies can provide a way to ensure that your children will get a college education or that your home will be paid off in full if you die before the mortgage is completely paid off.
It has been reported that the odds of any person dying in the next year is approximately 1%. This means that annual renewable term life insurance policies are nearly guaranteed to not pay off. Interestingly, for every year of the policy, the likelihood rises by 1%. Policies that extend beyond 20 years begin to assume higher risks and may have a payout as high as 50%. The longer the policy term, or the older a person is when they begin on the policy, the more risk the insurance company takes on, and the higher the premiums become when they change.