Term Life Insurance | Simple Low-Cost Coverage

Term life insurance offers basic protection for an insured, often at the lowest initial cost. This type of coverage is said to be “pure” insurance since it does not include many of the extra features available with other types of coverage, such as whole life or universal life. 

Term life provides temporary coverage for a predetermined amount of time, or “term,” in which the policy premiums remain level. Typical term policies available in today’s marketplace offer level premium periods of 10, 15, 20, or 30 years. After the expiration of the level term most term life policies can be renewed at the annually renewable premium rates.  This rate is based on the insured’s age at renewal and can represent a significant increase in premiums.

Many term life policies allow conversion to a permanent policy, subject to the issuing company’s guidelines, if the policy owner determines a need for permanent coverage.

Though term life policies do not have many of the living benefits associated with permanent life insurance, there are several policy riders available that may provide additional benefits. These riders range from accidental death and children’s coverage to accelerated benefits and waiver of premium. In some instances, riders are included in the base policy at no additional charge, and in other instances, there is an additional charge for certain benefit riders.

Specific riders, and associated costs, for a given policy, are at the discretion of the issuing insurance company. Common term policy riders have been provided below for review.

Accidental Death Benefit Rider – An accidental death benefit rider pays an additional amount if the primary insured’s death is caused by accidental injuries. This rider is typically a multiple of the base face amount. For example, an accidental death benefit rider may pay an additional amount equal to the original face amount. Accidental death benefit riders typically expire once the primary insured reaches a certain age.

Chronic Illness Rider – A chronic illness rider is an accelerated benefit rider that allows the primary insured to access a portion of a life insurance policy’s death benefit in the event of a chronic illness diagnosis. The amount of accelerated benefit may range from the full amount to a portion of the policy death benefit, depending on the specific insurance company. This type of rider will typically define a chronic illness as a primary insured’s inability to perform a certain number of activities of daily living, such as bathing, continence, dressing, eating, toileting, transferring, etc. A chronic illness rider allows the primary insured to utilize a portion of the policy proceeds while still living, possibly at a critical time of medical and/or financial hardship.

Critical Illness Rider – A critical illness rider is an accelerated benefit rider that allows the primary insured to access a portion of a life insurance policy’s death benefit in the event of a critical illness diagnosis. The amount of accelerated benefit may range from the full amount to a portion of the policy death benefit, depending on the specific insurance company. This type of rider will typically define a critical illness as diagnosis such as a heart attack, stroke, cancer, or other critical medical conditions. A chronic illness rider allows the primary insured to utilize a portion of the policy proceeds while still living, possibly at a critical time of medical and/or financial hardship.

Terminal Illness Rider – A terminal illness rider is an accelerated benefit rider that allows the primary insured to access a portion of a life insurance policy’s death benefit in the event of a terminal illness diagnosis. The amount of accelerated benefit may range from the full amount to a portion of the policy death benefit, depending on the specific insurance company. This type of rider will typically define a terminal illness as being diagnosed with 12 to 24 months or less to live (periods may vary based on state law). A terminal illness rider allows the primary insured to utilize a portion of the policy proceeds while still living, possibly at a critical time of medical and/or financial hardship.

Waiver of Premium Rider – A waiver of premium rider is a rider that waives policy premiums in the event of a primary insured becoming totally disabled. This type of rider typically only applies to the base policy and requires a waiting period of a certain number of months before future premiums are waived. Some insurance companies also limit waiver of premium riders to policies of less than a certain death benefit, such as policies below $5 million. A waiver of premium rider allows the primary insured to maintain their policy at no cost, possibly at a critical time of medical and/or financial hardship.

Term life insurance is extremely popular in today’s marketplace because it provides appropriate coverage for most individual life insurance needs. Often a person’s need for coverage is tied to common life events and a desire to provide for those we love and pay what we owe.

Typical life events prompting a need for life insurance coverage may include getting married, purchasing a home, having children, planning for college, saving for retirement, and other financial obligations. Essentially, if you have a temporary need for life insurance coverage, term life is often the simplest and most economical option.

The following case studies provide insight into common scenarios where the use of term life insurance is appropriate.

Since term life insurance offers basic (pure) life insurance coverage for a limited period of time and does not accumulate cash value like many permanent policies, it is routinely the most economical form of coverage available. With that said, there can be significant differences in premium rates from one insurance company to another, and longer level premium periods traditionally increase the cost of policy premiums. 

When shopping for term life insurance, it is important to select an appropriate term period and amount of coverage based on your specific needs. Even though longer terms increase policy cost, it is to your benefit to select an appropriate term length, as opposed to choosing a shorter-term length and potentially paying significantly higher annually renewable rates to extend coverage in the future. On this note, beware of rising premiums by ensuring that the level term period you select is guaranteed.

Basically, purchasing what you need and not a penny more helps to ensure that you get the most value for your premium dollars. It is also important to compare rates from several insurance companies to find the most economical coverage.  Working with an independent life agent will allow you to compare rates from several top-rated companies before making a decision. An example of a typical rate comparison has been provided below for review.

Choosing the best life insurance company for your individual situation can be a challenge, especially with numerous companies and policy options available. When comparing insurance companies, it is important to compare premium rates, but it is also wise to consider company ratings, policy offerings, underwriting standards, customer service, and other relevant factors. Being an informed consumer and having a basic understanding of how life insurance works is to your advantage. There are a number of outstanding companies in the marketplace, but below are a few of our recommended companies for term life.