Understanding Non-Decreasing Term Insurance: A Guide To Its Benefits And Features

Term life insurance is a type of insurance that provides a death benefit for a specified period of time. There are two basic varieties of term insurance: level term and decreasing term. While level term insurance pays the same benefit amount if death occurs at any point during the term, decreasing term life insurance provides a death benefit that gets smaller over time. This type of insurance is beneficial if you expect your loved ones to gradually need less financial support as time passes. It is also more affordable than other types of insurance, making it a viable way to protect against significant shorter-term expenses.

Level term insurance

Under a level term insurance policy, the insured individual pays a fixed premium throughout the term of the policy. The death benefit, which is the amount paid out to the beneficiaries in the event of the insured person's death, also remains the same during the policy's term. This predictability allows individuals to budget accordingly and plan for the future, knowing exactly how much their loved ones will receive in the event of their death.

The cost of level term insurance depends on various factors, including the insured person's age, gender, health, and lifestyle habits. Generally, younger and healthier individuals will pay lower premiums. For example, a 30-year-old non-smoking female in good health can expect to pay around $23 per month for a 20-year level term policy with a $500,000 payout.

While level term insurance offers stability and affordability, it is important to consider that the coverage will eventually end. Once the policy term expires, individuals may need to purchase a new policy at a higher cost, as life insurance becomes more expensive with age.

Renewable term policies

When you first sign up for a term life insurance policy, you can include a renewable term clause, which will typically add to the cost of the term policy. When the term is about to expire, you can renew and extend your coverage for another set period, usually five, ten, or twenty years, without undergoing a new medical exam. The policy's death benefit will remain unchanged. Renewable term policies are beneficial for those who still have financial obligations when their insurance expires, such as a mortgage or children's education fees.

Most term life insurance policies are renewable, but not all. Renewability is important because an insurance policyholder will likely want to renew a policy once the term is up, assuming their life circumstances don't change drastically. Renewable term life insurance usually has some limit at which point renewal is no longer an option, such as age 70. Renewable term life insurance policies also have some disadvantages, such as higher premiums than non-renewable term policies, and age limits on renewals.

Return of premium

However, the money-back feature of return of premium policies comes at a higher price. For example, a healthy 40-year-old looking to buy a 20-year, $500,000 policy can expect to pay nearly five times as much for a return-of-premium policy compared to a standard term life insurance policy.

Convertible term life insurance

I was unable to find information on what non-decreasing term insurance is. However, I can provide a detailed explanation of convertible term life insurance.

Benefits of Convertible Term Life Insurance

• You can decide when to convert to permanent coverage, giving you flexibility based on your financial situation and goals.
• No new medical exam is needed, even if your health has declined since you first took out the policy.
• The premiums for the convertible term policy are locked in, although they will increase once you convert to a permanent policy.
• It offers the chance to extend your coverage for the rest of your life, ensuring peace of mind and meeting your changing needs.

Who is Convertible Term Life Insurance Suitable For?

• You have long-term dependents, such as aging parents or a child with a disability, and need coverage beyond the initial term.
• You have several large debts, like a mortgage or car loan, that you don't expect to pay off before the term expires.
• You want to avoid the risk of being disqualified from coverage later in life due to age or health issues.

Alternatives to Convertible Term Life Insurance

There are other types of term life insurance to consider, such as level term life insurance, which offers level premiums for the entire term, and renewable term life insurance, which allows you to renew coverage up to a certain age.

Whole life insurance

• Lifetime coverage: Whole life insurance provides coverage for the insured person's entire life, unlike term life insurance, which is limited to a specific number of years.
• Level premiums: Whole life insurance policies typically have level premiums, meaning the amount paid every month remains the same throughout the policy's duration.
• Cash value component: Whole life insurance includes a savings component, known as the cash value, which grows over time. The policy owner can access and utilise this cash value in various ways, such as withdrawals or loans.
• Guaranteed death benefit: The death benefit, or payout, to the beneficiaries is guaranteed and remains the same throughout the policy.
• Tax advantages: The cash value component of whole life insurance grows tax-deferred, and any withdrawals up to the total premiums paid are tax-free. Additionally, the death benefit paid to beneficiaries is typically non-taxable.
• Dividends: Some whole life insurance policies may pay dividends, which can be used to increase the cash value or purchase additional coverage.
• Limited flexibility: Whole life insurance policies offer limited flexibility in terms of coverage length and premium adjustments. Once the policy is issued, the coverage length and premiums are generally locked in.

Frequently asked questions