TERM LIFE PLANS
Term Life- term life insurance provides a benefit that is payable only in the event that the insured dies during the policy term and the policy is also in force. Term life generally does not accumulate cash values. The policyowner normally does not have the ability to take cash from the policy via loans or withdrawals for this reason. If the policyowner of a term life plan quits paying their premiums, the coverage terminates. There are several different types of term life plans available today.
Level Term- this type of term life insurance provides a death benefit that remains level over the policy term. This is the most common type of term insurance available today. Although the premium that the policyowner pays during the policy term remains level, it increases noticeably at the end of the term if the option for renewal is given (due to attained age).
Decreasing Term- this type of term life insurance provides a death benefit that declines over the coverage term. Premiums paid into a decreasing term plan usually remain level throughout the term. Decreasing term may be used to provide a death benefit amount that correlates to the declining amount owed on a mortgage. It may also be used to cover the balance due on a loan if the borrower dies before the loan is repaid.
Increasing Term- this type of term life insurance provides a benefit that increases by a specified amount or percentage at scheduled intervals over the policy term. Premiums generally increase as the amount of coverage increases on this plan. In addition, the contract owner is usually given the option of holding the amount of coverage provided by the increasing term life policy.
Annual Renewable Term- this type of term life insurance, also known as one-year term, has premiums that increase annually. Usually the policyowner can renew the policy by simply paying each year’s increased premiums until renewal premiums are no longer offered due to age or renewal limitations in the policy.
Value proposition of Term Life: low-cost coverage
ADVANTAGES OF TERM LIFE
- Generally, it can provide the most insurance for the least initial premium
- Low premium during initial term relative to permanent plans
- Can provide supplementary coverage that is only needed temporarily
- Select plans may be converted to a permanent plan upon evidence of insurability
- Some plans may be renewable at the end of the term without evidence of insurability
DISADVANTAGES OF TERM LIFE
- Does not build cash value
- Coverage expires at the end of the term
- Insured may not be insurable when term period expires
- Premiums increase considerably upon term renewal
- If client quits paying, policy lapses
- Inflexibility in premium payments and coverage options
- Not all policies provide for renewal or convertibility
The primary factors that differentiate permanent protection plans are:
- Flexibility of the products
- Level of guarantees
