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Do you want to secure the financial well-being of your spouse and your dependents following your death? Few things in life are certain and death is one of these things.
While you may not know exactly when you will live your last day, you do know that when you are going that your family deserves to live the same standard of life that they lived when you were living. One of the most resourceful ways to provide for your family well after you are gone is to purchase life insurance.
Life insurance, while it seems complex, can be very similar to products that you buy every year.
Just like auto insurance protects you against financial loss sustained in a car accident, all life insurance products products your beneficiaries from the financial devastation that is experienced when someone dies.
Another similarity is that there are multiple types of auto protection to choose from just like the multiple types of life insurance that you must select from.
Each of the rates are based on risk and your likelihood of eventually filing a claim.
From annual term policies to guaranteed premium plans, the type of insurance that you choose and your personal rating factors will dictate the rates that you pay.
If you would like to learn more about how term life insurance policy rates are calculated, how the type of plan can affect price, and how your health plays a role in price, read this guide and learn everything that you want to know.
Use the FREE comparison quote tool above to start searching for term life policies!
What are the differences between term and permanent insurance?
There are two categories of life insurance: term and permanent. The way that rates are calculated, while they both utilize the notion of risk, are very different because the products are very different.
Term insurance is the most common type of insurance purchased in the United States today because it is affordable and it satisfies a wide range of needs.
Instead of remaining in effect for life, like a permanent insurance plan, term life policies are only active for a specified period of time. You will pay for strictly life insurance and not for any other investment components that are built into a whole life or universal life permanent policy.
The simplicity of the term policy is appreciated by many.
Simply put, you will have a level death benefit for a stated amount of time and, if you die during that period, the policy pays your beneficiaries.
The complexity behind permanent life contracts, that accumulate cash values based on the premiums that you pay, can turn some away. If your goal is to protect your family and secure their financial well-being for a state amount of time with a constant amount of protection, the term life plan is right for you.
What type of term insurance can you purchase?
Just like there is more than one type of permanent policy, there is one type of term policy. Each of the term options that you can choose from carry their own rates and are right for individuals with a different immediate or future need.
Knowing which type of policy will fit into your budget now and also later in life is key when you are buying life insurance that comes with an expiration date. Here is a breakdown of term life policy types:
Level Term Insurance Characteristics and Rates
Level term life is the most popular type of insurance purchased today. About 97% of consumers will buy level terms that provide coverage for an extended period of time that could last 5, 20 or 30 years.
When you buy the insurance, you choose the death benefit amount and this benefit will stay level until the term ends.
There are guaranteed, renewable and convertible level terms. A term policy can be one, two or all of these. A guaranteed level term will have guarantees premiums for the entire time the policy is active.
A renewable term is one that can be renewed once the policy term ends, and a convertible term is when the policy itself can be converted into a permanent plan for additional premiums without medically qualifying for a new plan if you want to convert the policy within a couple years of inception.
A guaranteed term plan may have higher rates than a level term that does not have guaranteed premiums.
This is because the insurer is free to raise your rates once the companies new rates are filed, making the non-guaranteed plan less of a risk.
A convertible may have higher rates than a non-convertible policy because qualifying for the term insurance means that that client is actually qualifying for coverage for life if they are later diagnosed with an illness and decide to convert to a permanent plan.
Which type of level term is right for you?
Now that you know there are multiple level terms, you need to learn how to decide on a specific one. Level terms that are convertible are great for consumers who may not be able to afford permanent insurance now but who would like to eventually purchase a permanent plan.
You will have insurance to protect you and are guaranteed the option to convert it based on the convertibility rules.
If you are young and plan on having a need for insurance after your term is up, be sure to look for a renewable term. This gives you the change to get another term once yours is expired, but most of the time you must answer medical underwriting questions for renewal approval.
All consumers should choose guaranteed premium terms over non-guaranteed, but if you are looking for the lowest rates at the moment for immediate coverage the non-guaranteed rates are almost always the lowest.
Annual Term Insurance Characteristics and Rates
Annual term insurance may not be extremely popular, but it is a good choice for the right type of consumer. Unlike level terms, annual terms only offer coverage for a period of one year at a time.
Each year the policy will renew and the premiums are based on your new age. To renew, you will need to sign paperwork and have new policy paperwork at the new pricing drafted.
When is annual term life right for you?
If you have an immediate need for coverage because you are about to travel or your mortgage company has a life insurance requirement, you may need a policy that can be issued in days. If you have some medical conditions, annual term life could be appropriate as well.
Typically, annual term life plans can be issued very quickly because there is not really thorough underwriting. You do not have to go to a paramedical appointment or submit medical records for the policy to be issued because the company is only committing to provide coverage for a single year.
The less risk, the less the underwriting. With this being said, the premiums for annual term life policies are higher than the rates for a level term both in the short-term and over time because there are less requirements which makes annual plans more convenient.
What other policy features can affect term rates?
There are other policy features that can be added to a level or an annual term plan that may actually affect rates. These features are called riders because they add additional coverage that rides on your plan.
Where there is added protection, there are higher rates. While adding riders costs you, in some situations you can save by adding specific riders instead of buying other plans separately.
Here are some of the riders that carry their own fixed rates:
- Guaranteed Insurability: Gives you the option to buy additional coverage at specific intervals until a stated age without medically qualifying.
- Waiver of Premium: Waives your premium if you are permanently disabled by definition in the terms of the rider.
- Spouse Rider: Provides a specified amount of coverage on your spouse’s life without making your spouse medically qualify.
- Children’s Rider: Provides coverage for children for one premium rate per child under the age of 18.
What personal factors can affect your life insurance rates?
Your health and lifestyle can dictate your rates.
During the underwriting process, the underwriter will assign you to a rating classification based on your health and lifestyle. Here are the factors that will help the underwriter select the right class:
- Height vs. Weight
- Age and gender
- Lifestyle habits (smoking, drinking, dangerous hobbies, traveling)
- Driving record
- Medical history
- Vitals and current health
Now that you understand what can affect your term life insurance policy rates, it is time to start shopping. The best way to save money on coverage is to do your homework, find financially sound companies, and to comparison shop.
If you want to shop around in a time crunch, you can use online quoting systems that give you multiple quotes at once. Use the FREE tool below to compare quotes instantly!