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MRDT Member

by: Zeus Design


Universal Life Insurance  

What Is Term Life Insurance?

Term life insurance also known as “temporary insurance” is designed to provide low cost protection for risk of premature death and will pay a benefit only if the covered individual dies within the given term period.

There is no cash value growth with term life insurance. Therefore, premiums for term are much lower over the short-run than any other type of life insurance. Actual costs of term insurance are based on the age, gender, lifestyle and health of the insured. After the initial term period, the cost of insurance will increase as the insured gets older. Over time, due to age increases, policy costs will eventually become cost prohibitive. Therefore, term insurance is best used in cases where the insurance is needed for a limited time.


Two important contractual features of term life insurance are the renewable provision and the conversion privilege. The policy’s renewable provision permits a covered individual to continue the insurance policy beyond the initial term period without providing evidence of good health. The costs beyond the initial term period will increase but the insurance company cannot cancel the insurance policy for any reason as long as it is renewable. Most policies are renewable to age 95.

The conversion privilege is as equally important and allows a policyholder to “convert” or exchange a term policy for a whole life or universal life policy without evidence of insurability. The conversion of a term policy is done at the insured’s current age and the premiums to convert to more permanent life insurance will be higher. The conversion privilege is especially important in situations where health changes impact an individual’s ability to get competitively priced insurance or especially when the individual is uninsurable.

There are several different forms of term life insurance policies. The types of term life include annual renewable term (ART), level term, decreasing term, return of premium (ROP) term, and lifetime guaranteed term insurance. Currently, the most popular term life policies are level term life, ROP term and lifetime guaranteed term. For more information on term insurance see, "What are the Types of Term Life Insurance?"


Advantages of Term Life:

  • Premium payments for term insurance are usually much lower than whole life
  • Affordability allows for increased amounts of insurance when it's needed most
  • Great for covering temporary needs such as notes, mortgages, etc

    Disadvantages of Term Life:

  • Payments will increase after the initial guarantee (level) premium period
  • Cost prohibitive over the long-run
  • You can outlive the coverage
  • No cash accumulation value

     

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