Saturday, March 12, 2016

11 Types Of Term Life Insurance


Term life insurance is an amount of life insurance that is good for a specific period of time - or "term". If you die before the term expires, then the insurance company will pay your beneficiary when you die. If you die after your term life insurance expires, no death benefit is paid.




Now that you know what term life insurance is, I wanted to talk about the types of term life insurance policies that you can get and how they work.

I break the types of term life insurance into three categories. Those are:

  • Group term life insurance
  • Individually owned term life insurance
  • Term life insurance riders

Let's take a look at each of these types of term insurance.

Group Term Life Insurance


Group term life insurance is life insurance you can purchase through your employer or other type of group. Group insurance is owned by the group and not by you.

I haven't looked up any statistics, but it's my feeling that group term life insurance is the most common type of life insurance people have. I say this because, most employers give each eligible employee some term life insurance. So those employees who never purchase insurance on their own, have some anyway.

There are four types of group term life insurance. Those are:

  • Basic group term life insurance Basic group term life insurance is an amount of employer paid life insurance each eligible employees gets. If anything happens while they die during the time they work for the employer it will pay. Its term lasts at least for the length of time you work for the employer.
  • Supplementary group term life insurance This is an additional amount of life insurance employees can purchase on their own under a group term policy.
  • Voluntary group term life insurance This is an additional amount of life insurance that employees can purchase above and beyond the basic group term life insurance as well. The difference between supplemental group term life insurance and voluntary group term life insurance is that supplemental term is part of the group contract that includes the basic group term life. Voluntary group term life insurance is a separate group term life insurance contract. In most cases, you'll only have the choice between supplemental and voluntary and not both. The difference between the two is subtle and you as an employee wouldn't necessarily know unless you asked how it was set up. Voluntary term life insurance might include more expansive portability options. It just depends on the contract.
  • Group accidental death and dismemberment Accidental death benefits are often included in group term life insurance options and usually expire at some point, either at termination of employment or upon a certain age.

Group term life insurance is great but it does come with some downsides. At the top of the list is that you don't own or control the coverage. I've seen employers terminate group term life insurance programs. This could leave you with no coverage.

In any case, group term life insurance will expire at some point or just get so expensive you have to let it go. While you might be able to convert your term policy or it might be portable, there are several disadvantages to term life insurance.

You can read more about the downsides in my post called "Eight Problems With Group Term Life Insurance".

Individually Owned Term Life Insurance


Individually owned term life insurance is life insurance that is privately owned and controlled by an individual who gets an actual policy. This is unlike group life insurance programs where you don't own anything and typically receive only a group certificate.

I've listed four of the main types of term life insurance you can buy on your own below:

  • Yearly renewable term life insurance Yearly renewable term insurance is renewed each year and premiums increase every year as you get older.
  • Level term life insurance Level term life insurance is probably more popular than annual renewable term. Level term life locks in your premium and keeps it level for 5, 10, 15, 20 or 30 years. At the end of the term time period, the coverage could end or function like annual renewable term from that point forward.
  • Decreasing term life insurance Decreasing term life insurance is usually called mortgage protection insurance. The idea is that the amount life insurance decreases as your mortgage does while your premium stays level.
  • Return of premium term life insurance Some term life insurance allows you to recoup you premiums if you live to a certain age.

The term life options you can get in the individual market will vary from company to company. This would also include certain conversion privileges which would allow you to convert your policy to a whole life policy before the term insurance expires.

Term Life Insurance Riders


A rider is an attachment to a base policy you purchase. There are three main term life riders you can add. Those are:

  • Level term insurance rider When you buy a whole life policy, you can add a level term rider to the policy that's purpose is to increase the base amount. A common level term rider might last twenty years.
  • Children's term life insurance rider You can attach a child term life insurance rider to a whole life or term life policy. For a flat premium, you can cover all your children for a flat amount like $15,000 up until a certain age like 18 or 26.
  • Accidental death and dismemberment Accidental death benefit riders can be added to policies to double the death benefit in the event of an accident or provide a payment in the event of dismemberment. These riders often expire at an age like age 70 and then they drop off.

I'm not a big fan of level term riders myself as I prefer to keep my term life insurance separate from the whole life policy. But without looking at each contract it's tough to say across the board.

I like children's term riders for their convertibility options. 

Conclusion


That's a pretty good summary of the different types of term life insurance available. Which term life insurance should you buy? Well that will depend on a variety of factors.

Term life insurance is an excellent way to buy a lot of insurance for very little money. That's its major appeal because it's so cheap while you are younger.

Remember, that term life insurance of any type does expire at some point. Most likely, you'll never collect on your term policy because statistically, you'll probably outlive it. But, I still buy term life insurance and recommend everyone else do especially to those who have families.  

If you have any questions, put them in the comments below.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.

1 comments so far

I believe 10 years term life insurance is a good option. Specially, for seniors this type of plans are really very profitable if you want it as an investment. I have posted a complete article on my site.


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