- When should I consider buying
a term life policy?
Term insurance is generally used when the need for death benefit
protection is temporary or if you are unable to afford the premiums
of a permanent life insurance policy. Term insurance typically provides
for the largest immediate death benefit amount for each premium
dollar. It is appropriate if you are seeking protection for a specific
need that will end at a future date such as to pay for a child’s
college education expenses, to repay a loan or to replace income
should death occur prior to retirement.
- How does term life insurance
differ from permanent life insurance?
Permanent life insurance is intended to provide protection for
your entire life. Generally, the premiums for permanent insurance
are higher at least initially than for the same amount of term insurance.
A portion of the permanent life insurance premium is used to build-up
a cash value in the policy. The cash value can be used in a number
of different ways including allowing you to take out a loan against
the cash value. Term insurance, as described in question one, provides
protection only for a specified period of time and typically does
not build up any cash value.
- What are the main types
of term life insurance available for purchase?
In general, there are three main types of term insurance available:
Level term insurance
The amount of death benefit protection you purchase will remain
the same for the entire term period. The premiums you pay for this
level amount of death benefit may also be level for the entire period,
may be level only for a specified period, or may increase over time.
Decreasing term insurance
The amount of the death benefit protection you purchase will decrease
over the term period. Premiums for a decreasing term policy usually
remain level throughout the term period. Decreasing term insurance
is generally purchased by those who have financial obligations that
decrease over time such as a mortgage or a personal or a business
loan.
Annual renewable term insurance
The amount of the death benefit protection you purchase will remain
the same for the term period. The premiums you will pay for this
level amount of insurance will increase each year.
- What is “renewable”
term life insurance?
Many term life insurance policies are described as being “renewable”.
This feature allows the policy to be renewed for another term period
without having to show that the insured is in good health. As long
as you pay the premium due, the policy will automatically renew
for another term period subject to a maximum age limit. The premium
due upon renewal will most likely be higher than the premium you
paid for the initial term period.
In most cases, term policies in New York currently cannot be renewed
beyond age 80.
- What is “convertible”
term life insurance?
Some term life insurance policies are described as being “convertible”.
A conversion provision allows the owner of the term life policy
to convert from the term life insurance policy to a permanent life
insurance policy during a specified period of time without having
to show that the insured is in good health. The conversion period
is shorter than the duration of the term insurance coverage.
- How long will coverage
under a term policy continue?
How long coverage under a term policy will continue will depend
on the type of and duration of the term policy you purchase. For
example, if you purchase an annual renewable term policy your coverage
may be renewed each year up to a specified maximum age limit. If
you purchase a 10 year level term policy you will have coverage
for 10 years. If you purchase a 10 year renewable level term policy
you will have coverage for 10 years and then have the right to renew
your term coverage for another 10 years.
- Will the premiums due for
term life insurance change over time?
Whether or not your premiums remain level for the entire term period
or increase over time will depend on the type of term policy you
purchase. Premiums for a term policy may be either level or increasing.
Premiums can also be guaranteed in the policy to remain level for
a specified period of time and may increase thereafter. In general,
for most term policies the premiums will increase over time.
Some term policies provide for what is known as “indeterminate”
premiums. This means that the policy will set forth a schedule of
maximum guaranteed premiums. The insurer can never charge more than
the maximum premiums in your policy. However, the insurer intends
to charge you what is know as the “current” premiums
which are less than the guaranteed maximum premiums in your policy.
Ask to see both sets of rates before you make a purchase.
Term insurance is very competitive with respect to premium rates.
Shop around and compare.
- Can an insurer cancel term
life insurance?
A term life policy will stay in force as long as you continue to
pay the premiums due. If you miss a premium due date you will have
a 31 day grace period to pay the premium due. Your policy will remain
in force during the grace period.
An individual term life policy can be canceled by the insurer only
for non-payment of premium. If you do not pay the overdue premium
payment within the grace period your term policy will terminate.
The policy cannot be canceled due to a change in your health status.
If you purchase term insurance through a group such as an employer-employee
group your term coverage may terminate when you are no longer an
eligible member of that group e.g. your employment ends. Be sure
to read the termination provision of your group term life certificate.
- What is a “Return
of Premium” feature?
A “Return of Premium” feature is a feature that has
recently become popular and may be offered in conjunction with term
life insurance coverage. The return of premium feature will generally
provide for a refund of all or some of the premiums you paid for
the term insurance at the end of a level term period or at end of
the term coverage period if no death benefit was paid out during
that period. The parameters of the return of premium feature will
vary depending on the term life insurance policy you purchase. The
return of premium feature can be offered by a separate rider to
the term life policy for an additional cost. The return of premium
feature may also be a provision within the term life policy. Term
life policies with this feature will be more expensive than a term
life policy that does not offer this feature. You should consider
whether the return of premium benefit is worth the extra cost.
- What premium mode should
I choose when purchasing term life insurance?
Most companies offer a variety of premium modes including annual,
semi-annual, quarterly or monthly. In deciding which premium mode
to choose you should consider the following:
If you choose to pay an annual premium and then decide to terminate
your policy before the end of the year, the insurer is not required
to refund any portion of the premium paid.
Generally, there is a higher cost associated with more frequent
premium modes. Ask your agent or the company for a comparison of
the different premium modes and the costs associated with each before
making your purchase.
