eFinancial: 5 Things to Know About Term Life Insurance

Term life insurance provides financial protection for loved ones at an affordable rate. If the policyholder dies while the policy is active, the beneficiaries will receive a substantial death benefit they can use to replace income, cover end-of-life costs, and pay off debts.

These policies are typically simpler than permanent life insurance, but there are still a few things customers should know to be more informed when looking for term life insurance quotes. Let's dive deeper into five things to know about term life insurance so potential policyholders can feel more confident as they shop around and compare term life policies.

1. Several factors impact policy costs

Many factors can impact the cost of a term life insurance policy, including: 

  • Age: Older policyholders pay higher premiums than younger policyholders.
  • Health: Health problems or a family history of health issues may result in higher premiums.
  • Gender: Men tend to pay slightly higher premiums than women.
  • Smoking: Smokers pay higher premiums.
  • Job: Some jobs, like airline pilots or firefighters, are considered risky. Policyholders may pay more if they work in one of these high-risk jobs.
  • Hobbies: Some hobbies are considered high-risk, such as skydiving and car racing. If a policyholder participates in any of these activities, their premiums may be higher.
  • Insurer: Some insurers may charge different premiums than others for the same amount of coverage.

2. Policyholders can add riders

Riders are add-ons policyholders can pay to include in their term life insurance policy for additional coverage or other benefits. One popular rider is the accelerated death benefit rider. This allows the policyholder to potentially receive a portion of the death benefit early if they're diagnosed with a chronic or terminal illness. Using this rider, policyholders can use the death benefit to cover the costs associated with a major health issue.

3. The policyholder may have to take a medical exam

Most term life insurance policies require policyholders to answer a medical questionnaire and undergo a medical exam. The policyholder will typically take this after applying for the policy. Once a policyholder submits their application, the insurer will provide them with instructions on scheduling the medical exam.

Medical exams provide insurance companies accurate health information that can help them assess the policyholder's eligibility and calculate how much they'll have to pay in premiums. Policyholders that have health issues or a family history of health problems may face higher premiums.

4. There are several types of term life insurance

There are several kinds of term life insurance, and comparing these policies can help policyholders pick one that fits their coverage needs and budget:

  • Level term life policies: Level term life insurance provides a death benefit for a fixed term length.
  • Renewable term life policies: These policies let policyholders renew coverage without a medical exam, meaning they can't be denied for the new policy. But keep in mind that the new policy will charge higher premiums.
  • Convertible term life policies: These types of life policies let policyholders turn some or all of their term life coverage into a permanent life policy without taking a medical exam, helping them avoid denial. But once they convert to the new policy, premiums will increase.

5. There are many term lengths available

Term life insurance generally offers term lengths of 10 to 30 years. This makes getting the right amount of coverage and staying within budget easier. For instance, if a policyholder has a new child and wants to supplement their current policy until the child is an independent adult, they could get a 20 or 25-year policy to boost coverage at an affordable rate. Then, when the child grows up and the policy expires, the policyholder will no longer have to worry about paying the additional premium.

The bottom line

Term life insurance policies can offer excellent financial protection, but it's vital to know how they work so policyholders can get the coverage they need without overpaying. Several types and term lengths are available, and policyholders can add riders if they want other features, but these aren't the only factors impacting premiums. Age, gender, health, job, and the medical exam results can also influence a policy's rate. 

Doing research and shopping around is one of the most important things life insurance customers can do aside from understanding how these policies work. By gathering multiple quotes, policyholders can find a great policy with affordable coverage.

Contact: michael.bertini@iquanti.com

Source: eFinancial