Insurance in general is confusing and life insurance can be very confusing to understand due to all the provisions and riders. So when carriers come out with multiple products with an array of provisions it can be overwhelming to decide which is best for your planning needs.
So let’s catch you up on the different types of term life insurance policies. Being informed will help you be more comfortable with the product and more confident in your decision to purchase the plan for you or your family.
There are primarily four different types of term life policies available:
“ART” or Annual Renewable Term Life:
Or it is also called “yearly renewable term” or YRT and ART or “annually renewable term”
This product simply provides protection for one year, then it renews the next year same face amount but the premiums increase with your attained age. This product is usually used for very short term needs. Perhaps to cover a loan or some sort of business situation where an executive or key employee needs the coverage.
Guaranteed Level Term Life Insurance:
With this policy at the time of application you will choose a level death benefit. The premium is level as well but you need to be very careful here.Depending on the carrier some policies may be a 20 yr level term life but the premiums may adjust after an initial 10 yr guaranteed period. Most carriers have guaranteed their level term life products for the whole term period, they have done this primarily due to competition. Make sure you look at the carriers illustration ran on their own software. There you will be able to verify if the premiums are guaranteed for the whole term period.
Decreasing Term Life:
This product is mostly non-existent anymore, due to that rates have become so competitive and affordable that level plans make more sense to buy. You may have heard this product called Mortgage Term Life Insurance also, because it was marketed mostly to new homeowners after buying a home to cover the loss of the bread winner. This product would simply decrease in face amount and premiums over the years of keeping the policy in force. The goal would be that when your mortgage or loan was paid off your insurance would dissipate as well because there was no longer a need for coverage. My opinion is just buy a level guaranteed product, they are affordable right now and you would want the larger face amount for your family anyway.
Return Of Premium Term Life:
This type of policy is a newer product that has been around for a few years now.We really recommend this type of plan and it is extremely popular with consumers for these reasons. Typically depending on the carrier you could purchase a 15 year, 20 year, 25 year or 30 year policy. What happens is after you hold the policy typically for half of the time of your guarantee you would start building a return of your premium dollars. For example if you bought a 30 year return of premium after year 15 you could “cash in” your policy for a certain percentage of what you have paid into the policy. Request that your broker or agent show you the carriers illustration where it shows you exactly how long you have to hold the policy and how much you would get back in your pocket. Of course if you hold the policy to maturity you will get back 100% of your premium, not to bad heh. Only bad about these policies is that they are definitely more expensive that straight term life policies. The return of premium life plans are great if you can justify paying more now for the potential to get all your premium back down the road.
You are now armed with the basics of the different types of term life policies and plans. As always ask a lot of questions and make sure you feel comfortable working with your broker and the carrier you select to insure your life.