Understanding The Different Types Of Term Life Insurance

The right term life insurance policy—you know it’s out there. But how will you know when you find it? You can start by learning everything you can about the different options available to you. This simple guide to the different types of term life insurance offers valuable information to help you find the best policy for your needs.

Term Life Insurance

First, as a quick refresher—term life insurance means life insurance that lasts for a defined amount of time. So any type of term life insurance policy is going to have a predetermined term limit. Benefits are paid out if the insured passes away within the term. Once the term expires, the policy holder is no longer covered. Term life insurance is one of the two broad categories of life insurance, the other being whole life insurance. Now on to the different types of term life insurance...

Understanding The Different Types Of Term Life InsuranceAnnual Renewable Term Life Insurance

As the name states, annual renewable life insurance is a type of term life insurance policy with a term of one year. As with longer term life insurance policies, the beneficiaries of an annual term life insurance policy will only receive benefits should the insured die within the one year term.

Annual renewable term (ART) insurance policies are annual policies that can be renewed each year for a predetermined amount of time. This is helpful in the case of terminal illness, as the policy holder can continue to renew if more time is needed. However, premiums can be very high with some policies.

Mortgage Life Insurance

For the majority of Americans, a mortgage is the largest and most important financial investment they will ever make. Mortgage life insurance is a type of term life insurance that covers the insured’s mortgage in the event of death. If you’re concerned about how your spouse or other beneficiaries will pay for the mortgage on your home when you die, then this type of term insurance could be the answer.

Level Term Life Insurance

With level term life insurance, the premium the policy holder pays is guaranteed. In other words, the rate will not be raised for a period of time (term). The terms are typically 10, 15, or 30 years, with 15 years being standard. During those years, the premium paid by the policy holder stays the same. Since it is more expensive to have coverage as you get older, you can expect to pay higher rates as the length of the terms get higher. Most level term life insurance policies are renewable.

Return of Premium Life Insurance

One downside of term life insurance is that policy holders who outlive the term limits could get stuck with nothing to show for years of payments. That’s where Return of Premium life insurance comes in. With Return of Premium life insurance, a policy holder who outlives the policy term limits can receive his or her premiums (plus interest) back as a tax-free cash payment.

With regular term life insurance, the policy holder would not receive any premiums back. For this reason, Return of Premium term life insurance costs a significant amount more—twenty-five to fifty percent more—than regular term life insurance.

Weighing Your Options Before You Choose

Life insurance policies are pretty customizable, so the best thing to do is search around till you find one that suits your wants and needs. Variables such as your current age, health and financial status, risk factors, spouse’s job, children’s ages and dozens of other factors will determine which type of policy you need. Take your time and do your homework and you’re sure to find a policy that matches your budget and helps you to care for your loved ones, too.