When consumers compare life insurance, the cost of term life insurance is usually less than the cost of a whole life or universal life insurance policy, making term life insurance the cheapest type of life insurance coverage available in the United States. Term life insurance is temporary insurance and the rates are calculated a bit differently than the rates of whole and universal life, since the time period that the policy coverage is in effect is shorter than the insured person’s life span, depending on whether the policyholder choose a 1, 5, 10, 20, or 30 year term life insurance policy.
Term vs. Permanent Life Insurance
When the cost of permanent life insurance is calculated, rates are based on the age, health, and medical history of the insured person and the average expected life span. In general, insurance companies use statistics and actuarial tables to determine a particular applicant’s risk of death, or more specifically, the likelihood that the policyholder will die within the policy period and require the insurance company to payout the death benefit.
Permanent life insurance will pay the death benefit at some point if the policy remains in force and since life insurance companies can not cancel permanent life insurance such as whole or universal life policies, as long as policyholders continue to pay premiums, the coverage will stay in effect. On the other hand, term life insurance is based on the age of the insured person and the length of the term. The shorter the term, the lower the cost of term life insurance will be. Term life insurance policies only pay benefits if the insured person dies within the policy term and if the person survives, the policy expires and no benefits are paid.
Life insurance is usually priced by the unit, so the cost of term life insurance depends on the number of units purchased on the policy. A unit may be $10,000 or $20,000, and when an individual purchases a life insurance policy, they must specify the amount of the death benefit which is translated to units. For example, a consumer may purchase term life insurance coverage in the amount of $500,000 or $1,000,000. When seeking term life insurance rate quotes, it is often possible to find out the cost of term life insurance per unit which may help buyers decide exactly how much life insurance they can afford.
Renewable Term Life Insurance
A renewable term life insurance policy offers some of the benefits of a permanent policy since the insured person can renew the policy at specified intervals without repeating the application process and undergoing another medical exam. The initial cost of term life insurance with renewal options is about the same as a level term life insurance policy, but the premiums increase each time the policy is renewed while the death benefit remains fixed. The cost of renewable term life insurance is less than the cost of a permanent insurance policy but it continues to increase as the insured person ages because the policyholder’s risk to the insurance company increases with age.
Return of Premium Term Life Insurance
One of the advantages of permanent life insurance is the cash value that builds over time. While term life insurance does not build cash value, a return of premium life insurance policy will pay a lump sum if the insured person survives the term. The cost of term life insurance policies with a return of premium clause is higher than the cost of level term life policies, but the premiums paid into the policy and a guaranteed interest rate are paid at the expiration of the policy. The price of term life insurance with ROP is still less than the cost of a permanent policy.
Decreasing Term Life Insurance
While level term life insurance has a fixed premium and a fixed death benefit, decreasing term life insurance starts with a higher death benefit which decreases over the term of the policy. Decreasing term life insurance allows policyholders to change their coverage with their needs, usually corresponding to loan payments. The cost of term life insurance with a decreasing death benefit is less than the cost of a standard term life policy. Decreasing term life insurance policies are often used to cover debts like mortgages, business loans, SBA loans, or by people whose life insurance needs will decrease over time, especially as children graduate college and become independent.
Increasing Term Life Insurance
Sometimes the cost of term life insurance may be too high for a young family, but increasing term life insurance starts with a lower premium and death benefit that increases as the family’s income and life insurance needs increase. The best term life insurance with increasing coverage averages out to about the same as a standard policy, but the policyholder pays for only the coverage that is needed when it is needed. Increasing term life insurance policies are good options for younger individuals who are just starting families and do not have too much discretionary income or a huge budget at first, but know they will require life insurance coverage in the future.
Convertible Term Life Insurance
The investment feature of whole life insurance makes it attractive, but young people just starting their careers may not be able to afford the higher premiums. Convertible term life insurance allows policyholders to buy term life insurance protection that can be converted to a whole life policy when finances permit, usually within the first five years of the term. Term life insurance with the convertible option may be slightly higher than standard term life, but it allows policyholders more flexibility in their life insurance choices.
Group Life Insurance
When life insurance is purchased by a group, the term life insurance quotes are usually cheaper for each member of the group than they would be if purchased separately. Employers often offer group term life insurance as part of an employee benefits package and it may also be offered by professional organizations and associations. Although group term life insurance rates are lower, group policies usually have a death benefit cap so they may not provide all the protection a policyholder needs to protect his or her family.
Supplemental Life Insurance
If an individual has a permanent life insurance with a death benefit that is not enough to provide financial protection for his or her family, or if additional insurance is needed to cover a short term debt, term life insurance can be used to bridge the coverage gap. Supplemental term life insurance per unit is less than the cost of whole life insurance and since it is temporary, the policyholder can reduce his or her life insurance coverage when the need for protection decreases.
Compare the Cost of Term Life Insurance
The cost of term life insurance varies between life insurance companies so consumers may save money by comparing rates. Life insurance websites, like TermLifeInsuranceQuotes123.com, offer life insurance quotes from multiple insurance companies so consumers can compare the term life insurance quotes between companies and types of coverage, or compare the cost of term life insurance with whole or universal life. Individuals requesting life insurance quotes simply complete a short questionnaire to receive multiple free quotes.
Term life insurance quotes vary depending on the features desired by each individual, the age of the insured person and the length of the term. TermLifeInsuranceQuotes123.com provides dozens of helpful, informative articles on different types of term life insurance and helps consumers compare term life insurance rates so consumers can make an informed decision when making this important purchase.