Term Life Insurance Lowdown

Return of Premium Term Life

-- By Pushpa Sathish, Staff Writer

Term life insurance is not a very popular option simply because it makes death look like the best way to gain any return from your investment. Beneficiaries of a policy have to lose a loved one to gain monetary advantages from the deal.

But there is one term life insurance policy that offers a policy holder 100 percent of all premiums paid, even if he/she is alive at the end of the designated term – the Return of Premium (ROP) term life insurance. The premiums are a little higher than in a normal term life policy, but that’s just how the money is returned at the end of the term - the extra amount paid as premium is invested for capital growth.

The premium paid depends on the term of the policy, the longer the term, the less the premium. This makes sense since money grows more over a longer period of time.

Types of Term Life

-- By Pushpa Sathish, Staff Writer

When shopping for a term life insurance policy, bear in mind that there are three main kinds available:

• Level Term: While the death benefit remains the same for the full period of the term, the premiums stay the same for the entire period, stay the same for a certain period, or increase as the term goes by.
• Decreasing Term: The death benefit decreases as the term goes on while premiums remain the same for the entire term. This type of insurance is ideal for those who have financial obligations that decrease with the passage of time. 
• Annual Renewable Term: The death benefit remains the same for the entire period of the term while the premiums increase gradually.

State Insurance Regulators on – what every consumer needs to know about life insurance

National Association of Insurance Commissioners (NAIC) stated that most individuals know about the importance of life insurance. However difficulty is faced when it comes to deciding which type of insurance and exactly how much a person needs to put into life insurance. As part of the ‘Life Insurance Awareness’ month NAIC has put together tips and chunks of advice on how one should invest in life insurance. The association highlights the point that every stage of life is different and so are the needs at that specific time. It is not surprising therefore that an individual should consider different types of life insurance at different stages of his life.

Commenting on Term Life insurance the write-up suggests that young singles should consider investing in them. This is because the policy is renewable and can easily be converted to a cash-value policy for a set fee when they have more money. This type of life insurance is also recommended for those serving in the defense services. They can invest in low cost group term insurance that covers them while they are in active duty. Also Term Insurance is an excellent option for young families for both the spouses so as to help pay for child care and other domestic services.  Hispanic Business reports:

Consumer research conducted by the NAIC earlier this year indicates: -- Only 35 percent of young singles have life insurance. Furthermore, few young singles (28 percent) express high levels of confidence in knowing the difference between the two basic types of life insurance, term and permanent, and a similar number (27 percent) are highly confident that buying life insurance when they are young will guarantee their coverage later in life.

Advocating life insurance for the sake of survivors!

People who have suffered first hand the consequences of no life insurance know exactly how high on the priority list, having an insurance means. When an earning member of the family dies an untimely death, the survivors have a tough time dealing with the grief. If they have to deal with financial problems along with this they can land in a very difficult situation. Therefore one should buy a term life insurance at least so that they can be assured that their family members are taken care of financially while they battle with their grief.

In order to promote the concept of having a life insurance, the insurance industry has decided to observe every September as the National Life Insurance Awareness Month. With this they want to sensitize the Americans about the hard facts of life. This action is subsequent to LIMRA International’s research results that show that at least one third of the American adult population has not insured their lives. LIMRA International is a research and consulting organization for the insurance industry. The research revealed that this is primarily due to lack of coverage of young men and women. Seattle pi reports:

“The Life and Health Insurance Foundation for Education is a non-profit organization funded by the insurance industry that coordinates the national awareness campaign. It has a calculator on its site at www.life-line.org that consumers can use to determine their insurance needs.”

Why Term Life Insurance providers advertise more!

It is a simple case of demand and supply. While the demand for term life insurance may be high, the number of companies offering term life insurance policies is much more. The chances that a person might kick the bucket while being covered by term life insurance is quite less. Renewal of the policies is something that people generally go in for since no one wants to leave a lot of medical bills when they die. Apart from this the insurance companies do not have to make allowances for cash management. This is because there is no cash to be given to the policy holder if he is still alive at the end of the term.

No wonder that insurance providers consider this to be their cash cow. Hence term life commercials make up the bulk of insurance commercials aired during on television during day time. The benefits offered range from no checks on the information provided, no medical exams to no probability of being turned down for a policy. And they do manage to get a good piece of the ‘want to be insured’ market. A word of caution here – make sure that the deal that you are getting from your insurer is indeed the best deal!

Types of term life insurance you can choose from

Term insurance is a kind of life insurance that insures your life for certain duration of your life. The cover is for your life till such time as it is insured and there is no cash back should you survive the term The premium that you are asked to pay generally depends up on the type of tem plan you choose, the amount of coverage, your current age and the duration for which the insurance cover is desired. The different types of term life insurances are as follows:

Decreasing Term: As the name implies, decreasing term life insurance means that you are covered highest when you acquire the policy. As time goes by the coverage decreases and is the lowest when the plan is terminated. This kind of term life insurance has low premium which remains at that level as the death benefit decreases.
Level Term: In case of level term, the person who is being insured has to pay the same premium through out the tenure of the policy. In exchange he receives the same level of coverage for the complete duration. This obviously attracts a higher premium than decreasing term life insurance.
Renewable Term: In this case the premiums to be paid are not level but increase over the duration of the policy. However the death benefit will remain at the same level. The only good point about this is that the policy can be renewed easily and is guaranteed.

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Is buying a Term Life Insurance a cheaper option?

Perhaps yes! This is what the figures indicate. Term Life Insurance seems to the least expensive life insurance after all. And there is a valid reason for this difference in pricing. When you opt for a term life insurance you are buying coverage for your life and nothing else. This implies that you are not looking at it as an investment option and a way to build up your cash reserves. This is in sharp contrast to life insurances like whole life insurance that have a built in investment component. This investment component is what makes the policy more expensive.

Though this sounds exciting, remember that if you are above 50, you will be charged a hefty premium for a term life insurance. In such a scenario it would be wise to probably go for a whole life insurance. Therefore before you decide to buy a life insurance policy, do your homework and figure out what your requirements are. You also need to assess the kind of coverage that you need and also the amount you are willing to pay for the policy. Best syndication reports:

Many whole life insurance policies call these investments "retirement savings," but there are many other ways to save for retirement without having to choose a life insurance policy that may not be the best for you

Critical Illness Living Benefit

Term life insurance is an investment that does not generate monetary returns as long as the policy holder is alive. But there is one benefit that generates interest-free cash even if the applicant has not died.

The critical illness living benefit allows holders to avail a sum of money if they suffer from a cardiac arrest, stroke, malignant cancer, deafness, blindness, multiple sclerosis, kidney failure, paralysis, coronary artery surgery or any life-threatening illness during the term of the policy.

There are various conditions that have to be satisfied before obtaining this coverage. Not only must the applicant and his immediate family be healthy at the time of application, they should also have a history of good health.

The Age 70 Rule

The age 70 rule makes it hard for people who are 70 and above to get life insurance cover. The Financial Services Authority of the United Kingdom is reviewing this rule which disallows those who will be septuagenarians or older during the lifetime of any product from buying the product as insurance. They can only purchase it as an investment.

This means that financial advisors who sell only insurance products are barred from selling fixed-term insurance policies to people who will become 70 years of age or more while the policy is still valid. The fact that only those advisors who fall under the regulations of the Financial Services Authority are allowed to sell these policies, makes them more expensive and rare.

With intermediaries not authorized to sell life insurance as an investment product, the Association of British Insurers (ABI) is campaigning to get the rule changed.

Things You Need to Know About Term Life Insurance

• Term life insurance is a cheaper alternative to whole life and variable life insurance policies.
• Except in the case of a Return of Premium Term Life Insurance, it accumulates no monetary value, i.e., you don’t get back the money you have paid as premiums, at the end of the policy period.
• The policy expires at the end of the nominated period, which can be between one and thirty years. If the policy holder dies within that period, his beneficiaries are paid the insurance in full.
• You will have to undergo a medical check before your premiums are decided. If you are old or suffer from any serious illness, your premiums are likely to be high.
• A few insurers allow you to renew your policy at the end of the term, but the premiums are likely to be higher, a rise that is attributed to the increase in your age.
• Some policies provide policy holders with terminal illnesses accelerated benefits. The premiums on such policies are higher than normal.