The biggest benefit of term life insurance is lower cost when compared to whole life insurance, and other policy types that have an investment provision. Term costs considerably less, and if you invest your savings yourself, you’ll almost certainly have more money in the future than you will have with a whole life policy. But there are other advantages to term policies, including the terms themselves. You can use various terms to meet specific needs in your life. That enables you to get the coverage that you need without paying too much for the policy.
Here are the most popular terms for term life insurance, and how you can use those terms to your advantage.
Five Year Term Life Insurance
Just as the name implies, a five-year term life insurance policy provides a fixed level of insurance coverage at a stable annual premium for the full five-year term of the policy. Because it is fairly short term, it is one of the least expensive forms of life insurance that you can purchase.
These plans can be an excellent choice if you need to cover a certain specific need. For example, let’s say that you have a child in college and you want additional life insurance during the time in school. A five-year term policy will cover that need nicely.
Still another example is where you have a large loan. For example, if you have a large car loan that will run for five years, a five year term policy can cover the need.
The benefit of a five-year term policy is that you can cover a short-term need, without having to pay the additional cost of having permanent life insurance.
Ten Year Term Life Insurance
This term has similar benefits to a five-year term policy, except it’s obviously twice as long. You can purchase life insurance at low cost, with a fixed death benefit and a stable annual premium for 10 years. That adds even more flexibility to your life insurance options.
Let’s say that you have two or more children in college – a 10 year term policy can cover the entire time that all of them are in school. It can also be used to provide additional insurance in the event that large balance student loans are outstanding. If the loans will be paid off within 10 years, a 10 year term policy will be a perfect fit.
This can also work out well if you have business partners you want to insure. In order to keep business expenses to a minimum, you won’t want to bear the much higher cost of whole life insurance. A 10 year policy can give you plenty of time, but at a greatly reduced premium level.
15 Year Term Life Insurance
The 15 year term policy gets into the longer-term type of policies. Again, you will have a fixed premium for the entire term of the policy, as well as a constant death benefit.
A term of this length can be excellent if you want extra life insurance to cover a time when you have longer-term debt, such as a student loan debt that will run upwards of 15 years, a home equity line of credit, or even a business debt.
It can also be valuable to provide additional insurance if your children are still fairly young. A 15 year term policy may cover the time between now and when your youngest child reaches the age of emancipation. After all, once your kids are grown and on their own, your need for life insurance will decline. There’s no need to pay the much higher premium that permanent life insurance will cost.
20 Year Term Life Insurance
The 20 year term policy provides you with a fixed death benefit, as well as a level payment for 20 years. A term of this length can be perfect to provide a larger amount of life insurance if your children are very young, and you’ll be looking at roughly 20 years before emancipation.
It can also work well if you are about 10 years into a 30 year mortgage. The 20 year term will cover the remainder of your mortgage loan. It can also be an excellent policy for business insurance, particularly on a well-established business that involves stable long-term relationships with partners or key employees.
30 Year Term Life Insurance
A 30 year term life insurance policy runs a length that provides stiff competition for permanent life insurance policies. The 30 year term means that you will have a fixed death benefit as well as fixed annual premiums for the entire time that it takes to raise a family from birth to maturity.
And if you’re 30-something years old, it may be all the life insurance that you need to cover the rest of your working years – right up until age 65. At that point, you’ll probably have a greatly reduced the need for life insurance due to the flow of retirement income.
Yearly Renewable Term Life Insurance
This type of term policy can run in similar lengths, from five years to 30 years. But what makes it different – and also makes it more affordable – is that the premiums are scheduled to increase during the term of the policy. That means that the premiums in the first years will be lower than what they would be for a fixed term policy of a corresponding length.
The premiums will increase throughout the term, however the premiums will be very affordable in the early years of the term. Meanwhile, the death benefit will remain fixed throughout the term.
This is an excellent policy for a young family that needs a high level of coverage, but doesn’t have a whole lot of budget room for life insurance. The premiums will start low, and increase gradually, consistent with the increased future income that young families generally expect.
The downside of this type of policy is that it will become progressively more expensive. But as you move through the policy term, you may consider replacing it with a fixed term policy that will provide you with a level premium for the entire term.
Decreasing Term Policy
These are usually longer (10+ year) term policies, in which the annual premium remains fixed, but the death benefit actually declines all the way to zero by the end of the term. For example, you might take a policy that starts out at $200,000, but drops down to zero after 20 years.
The advantage of this type policy is that the premiums are low, and you don’t pay for more life insurance coverage than you need.
This type of policy is most closely associated with mortgages. Since mortgages amortize from the initial loan balance down to zero over the life of the loan, a decreasing term policy roughly parallels the declining outstanding principal balance at any point in the term. That being the case, the policy will pay off the remaining mortgage loan balance at any point during the term of the loan.
That is, the policy will exist expressly for the payoff of your mortgage, enabling your family to continue living in the family home even after you are no longer there to help make the monthly payment.
As you can see, term life insurance policies are hardly a single type of plan. You can mix and match term policies to meet whatever your life insurance needs are. We’d like to help you set up that perfect insurance match, so you’ll have the coverage that you need, without paying any more than is absolutely necessary. Give us a call and let’s see what we can work out.
