Instant Term Life Insurance Overview
Helpful Information to Help You Make the Right Choice!
What is Instant Term Life Insurance?
A term life insurance policy is life insurance purchased for a specific period or term, from 1, 5, even 30 years. Based on health conditions the insured pays a designated premium, and if the insured dies within the term, the insurance company will pay the death benefit to the designated beneficiary(s). Term life insurance is one of the most inexpensive options when purchasing life insurance.
EXAMPLE: Bob has two young children age 3 and 5. Bob wants to be sure to fund for their college education should he die prematurely. At an assumed future college cost of $250,000 per child, Bob might consider purchasing a $500,000, 20 year, instant term life insurance policy.
Types of Instant Term Policies
Level Term insurance is probably the most common form. It provides a fixed premium AND death benefit for the policy term from 1 to 30 years.
Annual Renewable Term insurance comes with a one year term and renews each year. The premium increases each year to reflect the insured’s increase in age. This type of policy structure can also be used to extend some Level Term policies beyond the level/guaranteed period.
EXAMPLE: Samantha, age 32, purchases a 10 year Level Term policy. The policy also allows you to continue the policy on an annually renewable basis in years 11 and beyond. Remember the premium will be substantially higher in the annually renewable years due to the increase in Samantha’s age, 42 in year 11 of the policy.
Decreasing Term insurance has a decreasing death benefit. Typically these policies are associated with covering a mortgage. The drawback to the decreasing death benefit is that the premium stays level.
Return of Premium Term insurance allows for a refund of premium paid if the insured doesn’t die within the term of the policy. These policies are typically expensive.
Additional Benefits to Consider When Purchasing Term Life Insurance
Waiver of Premium – This is a rider to a term life insurance policy and is offered by most companies. The Waiver of Premium can normally be added for pennies on the dollar. The rider says that if you are disabled, the insurance company will pay the premiums for your life policy for you as long as you are disabled. This rider should be considered when purchasing any instant life insurance policy.
Convertibility – Almost all term policies have some sort of convertibility option. The convertibility option allows you to convert your term life insurance policy to a permanent policy. This is typically done when someone develops a condition or illness that leaves them uninsurable and unable to secure additional life insurance. You can then convert the term policy to permanent policy. You DO NOT have to prove insurability when you convert and the new premium will be based on original underwriting decision and your age at the time you convert. Convertibility options differ from company to company.
EXAMPLE using both of the above: Beth purchased a 20 year level term policy at age 47. She also added the waiver of premium rider and the policy can be converted anytime within the 20 year term. Beth is now age 59 and has developed breast cancer making her uninsurable for any new life insurance. Not only is she uninsurable but she has also been deemed disabled. Beth informs the insurance company of her condition and disability and they begin paying the premiums for Beth’s life insurance policy. With the original term life insurance policy expiring in a few years Beth also decides to execute the convertibility option and converts the term life policy to a permanent policy. The insurance company, due the waiver of premium rider, will also pay the premium for the permanent policy. Note: all company rules and regulations for waiver of premium and convertibility can be different so consider your options carefully.