Term Life Insurance: An Explanation

We at TopLine Life Insurance are committed to our clients. We pride ourselves in explaining the life Insurance options that are available to you and your family. In this article, we will provide you with a breakdown of term life insurance so that you can make a more informed decision about the coverage you want.

What is Term Life Insurance?

Term life insurance, or pure life insurance, is one of the primary forms of life insurance a person can have. It guarantees the payment of the specific, stated death benefit while the insured person holds the policy and makes the required payments within the specified term. When the term of insurance has expired, the insured may apply for a new policy but the approval and premiums, will be based on current health and attained age of the insured. Please remember an insured can normally convert to a permanent plan of insurance anytime during the life of the term policy.

How Does It Work?

Most policies are issued for either 10, 15, 20 or 30 years. The insured chooses the length of the policy that he or she would like. The premiums for the policy are locked in for the length of the policy. If the insured dies while the policy is in force the full death benefit will be paid directly to the beneficiaries. These funds are used to pay off mortgages and consumer debts, health costs, funeral costs, education costs, business loans and many other expenses.

Most of these policies do not generate cash value during the length of the policy unlike whole life or universal life policies. As a result of having no cash value, the premiums for term life insurance are significantly less expensive than whole life or universal life insurance. Once a term policy has expired, the insured has the right to convert the policy to a whole life policy or apply for a new term policy. The prices of a new policy will depend on the age and the health of the insured at that time.

For Example:

32-year-old, Frank, wishes to protect his wife and child in the event of his untimely death. He buys a $500,000, 15-year term life insurance policy with a premium of $35/month.

• If Frank made regular monthly payments and was to pass away before his 47th birthday, the insurance company would pay the full $500,000 to his family.
• Alternatively, if Frank allowed the term to expire, chose not to reinstate it, and died after the policy termination, his beneficiaries would not receive any policy benefit.
• Finally, if Frank let the policy expire but chose to reinstate it before his death, the new policy’s premiums would be adjusted according to his current age, health, and life expectancy. The payments would most likely cost more than the premiums of the expired policy.

The second type of Term Insurance is referred to as Return of Premium Term Insurance. This type of insurance is more expensive than the traditional term insurance discussed above. It is usually issued as a 20 year term policy. After 20 years the policy ends. If the insured dies any time during the 20 years, the beneficiaries will receive the full amount of the policy. If the insured is alive at the end of the policy, they will receive a full refund of all premiums paid over the 20 years.

For example: if the insured paid $10,000 in premiums over the 20 years, they will receive a check for the full $10,000 at the end of the policy. In order to qualify for this refund, all premiums must be paid on time for the length of the policy. There are very few companies that provide this type of policy today. Please call us to find out which companies are currently offering Return of Premium Term Insurance.

Three Common Term Life Insurance Options

Term life insurance comes in three basic forms, so you can choose the term policy that works best for you.

Term life insurance is usually the least costly method of buying a sizeable death benefit. Therefore, term life insurance is more popular with younger clients, as their life expectancy is higher and their chances of developing a severe illness are minimal compared to those of older clients. If you are interested in purchasing an affordable term life insurance policy from a reliable insurer, take a look at our policies, weigh your options, and give TopLine a call today!