Term Life Insurance: Can You Change Your Policy?

Term life insurance is a type of life insurance that provides coverage for a specific period of time, usually at a locked-in rate. It is often the most affordable option and guarantees a death benefit to the policyholder's beneficiaries if they die during the specified term. The policy has no value other than this benefit and does not accrue a cash value over time, meaning policyholders cannot borrow against it. Term life insurance is ideal for those who want substantial coverage at a low cost and can be particularly useful for income replacement, covering mortgage payments or a child's college education.

Term life insurance is a cost-effective option

Term life insurance policies can cover almost any length of time and will remain in effect for the entire period as long as you continue to pay the premiums, which are usually paid monthly or annually. The premiums are based on the policy's value, the age, gender, and health of the insured person, as well as other factors such as driving record, smoking status, occupation, and family health history.

One of the biggest advantages of term life insurance is its low cost. For example, a healthy, non-smoking 30-year-old man can get a 30-year term life insurance policy with a death benefit of $250,000 for an average of $18 per month. This is significantly lower than the average cost of a whole life insurance policy, which is a type of permanent insurance. Term life insurance is also attractive to young people with children as it provides substantial coverage for a low cost.

Another benefit of term life insurance is its flexibility. You can choose the length of the coverage period, and there are several types of term life insurance policies available, such as level term, yearly renewable term, and decreasing term, to meet your specific needs. Additionally, term life insurance policies are easy to obtain, with a simple application process and no medical exam required in some cases.

Overall, term life insurance is a cost-effective option that provides financial protection for your loved ones at a low price. It is a good choice for those who want substantial coverage at a low cost and can be customised to meet your specific needs and situation.

It provides coverage for a specific period

Term life insurance provides coverage for a specific period, or term, of time. This type of insurance guarantees a death benefit to the policyholder's beneficiaries if the insured person dies during the specified term. The length of the term can vary, with policies typically lasting 10, 15, 20, or 30 years, and some even offering terms of up to 40 years. The policyholder can choose the length of the term based on their individual needs and circumstances.

During the term, the policyholder is required to pay premiums, usually on a monthly or annual basis, to keep the policy active. These premiums are calculated based on factors such as the policyholder's age, health, and life expectancy, and they remain locked in for the duration of the term. If the insured person passes away within the term, their beneficiary will receive the death benefit, which can range from $10,000 to over $1 million. This payout can be used to cover expenses such as funeral costs, outstanding debts, and living expenses for the beneficiary.

Once the term expires, the policyholder has several options. They can choose to renew the policy for another term, possibly at a higher rate; convert it to permanent coverage, which provides lifelong protection; or allow the policy to lapse. Term life insurance is a cost-effective way to obtain substantial coverage, as it offers a high level of protection at a lower price compared to other types of insurance. It is particularly suitable for individuals with growing families or those with specific financial obligations, such as a mortgage or a child's education, that will only last for a certain number of years.

It offers a death benefit to beneficiaries

Term life insurance is a policy that offers coverage for a specified number of years. If the insured person passes away within the time frame, their beneficiaries will receive a death benefit. The death benefit is the money – either a lump sum or paid in instalments – that gets paid to your beneficiaries if you die while your life insurance policy is in effect.

When you buy a life insurance policy, you pick a death benefit and name a beneficiary who will get the payout. You can choose one or multiple beneficiaries, and you may also be able to choose secondary beneficiaries – those that will get the money if your primary beneficiary dies before you do.

The death benefit can range from $10,000 to more than $1 million. The amount of coverage you need depends on your particular financial situation. You'll generally want to make sure your family will be able to cover any outstanding financial obligations, such as:

• Children's education (including college tuition)
• Survivors' living expenses (for several years)

If you pass away while the term policy is active, your beneficiary would submit a claim to the life insurance company. Usually, the insurer will request a copy of the death certificate and then pay out the death benefit or face value of the policy. Depending on the policy, it may be paid in a lump sum or in annual payments.

Make sure to let your beneficiary know about the life insurance policy, because they will need to file a claim to receive the benefits.

Premiums are locked in for the term

Term life insurance is a policy that offers coverage for a specified period, typically between 10 and 30 years. If the insured person passes away within this time frame, their beneficiary will receive a death benefit. The cost of term life insurance is based on a person's age, health, and life expectancy. The insurance company determines the premium based on the policy's value and factors such as age, gender, and health. The premium for a term life insurance policy is locked in for the duration of the term. This means that the policyholder will pay the same premium amount each year, regardless of their age or changes in health.

Term life insurance policies can cover nearly any length of time and will remain in effect for the entire period, provided the policyholder continues to pay the premiums. These premiums are usually paid on a monthly or annual basis. While the premium amount remains fixed, the cost of term life insurance is generally lower than that of permanent life insurance. This is because term life insurance offers a death benefit for a restricted time and does not have a cash value component.

When purchasing a term life insurance policy, it is important to consider the length of coverage needed. If the insured person has children, a common rule of thumb is to choose a term long enough to see them through college. Additionally, it is generally easier to obtain insurance at a younger age and in good health. The longer the term, the more the policyholder will typically pay each month for a given coverage amount.

Term life insurance policies also allow policyholders to choose their beneficiaries. These can be family members, a trust, a charitable organization, or even a friend. The policyholder can decide how much of the death benefit each beneficiary will receive.

In summary, term life insurance offers a locked-in premium for the duration of the term, providing peace of mind and financial security for the policyholder and their beneficiaries.

It can be converted to permanent life insurance

Term life insurance is a policy that offers coverage for a specified number of years. If the insured person passes away within the time frame, their beneficiary receives the death benefit. Term life insurance policies can cover nearly any length of time and will stay in effect for the entire period, as long as the premiums are paid.

Term life insurance doesn't accrue a cash value over time, meaning you can't borrow against it. However, the advantage is that the cost of a term life policy is low, and it’s still customisable to your situation.

Term life insurance policies typically offer the option to convert them into permanent life insurance policies. Making the switch is easy, but deciding whether it’s the right move isn’t that simple. Here are some reasons why you may want to convert your term life insurance to a permanent life insurance policy:

• Your health has changed: Converting a term life insurance policy to a permanent policy allows you to extend your coverage without going through the underwriting process. This can be a valuable option if your health changes for the worse.
• Your budget has changed: You might have wanted to buy a permanent policy from the get-go but couldn’t afford the higher premium. If you’re making more money now, it can make sense to convert if the higher premium on a permanent policy fits within your budget.
• You want a cash value asset: One of the benefits of a permanent life insurance policy is that part of your premium goes toward the cost of insurance and part of it goes toward building cash value. Some people want cash value life insurance so they can access the cash during retirement (or for other reasons) tax-free.
• You want to leave a legacy: If you want to be able to leave an inheritance for your children but don’t want to scrimp during retirement just to ensure there’s cash left to pass on, a term life conversion can help solve that problem.
• You want to have funds to cover your final expenses: Even if you’re not worried about passing on money to your children, you might not want to saddle them with paying for your funeral. So converting enough of a term policy to a permanent policy to cover final expenses could make sense.

If you’re considering converting your term life insurance to a permanent life insurance policy, it’s important to weigh the pros and cons. While permanent life insurance offers the security of lifelong coverage and the ability to build cash value, it typically comes with higher premiums. Additionally, it's important to note that not all term life insurance policies are convertible, so be sure to check the terms of your policy.

Frequently asked questions