What are the Different Types of Term Life Insurance Policies?

May 30, 2018

You want to protect your loved ones financially in the face of your death, so you turn to the different life insurance policies available to you. As you shop, though, you realize the options are overwhelming. How do you know out of the various types of policies available which one is right for you?

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The most common type of insurance is term life. As the name suggests, it’s only good for a specific term. But even this simple type of life insurance has other options. Learn the various types available so you choose the type that suits your needs the most.

Level Term Life Insurance

The most common term life insurance is the Level Term Life Insurance. With this policy, you pay one premium for the entire term. It never increases no matter the state of your physical health. The downside of this policy is that once it expires, that’s it. You don’t receive any of the premiums back and you no longer have insurance coverage. Some policies offer the opportunity to renew, but when it comes down to it, many companies make it hard to actually make that happen.

Renewable Term Insurance

Some people prefer a short-term insurance policy that allows them to renew the policy every year. This way they have the option to renew or not renew. If you choose this option, know that you will be faced with higher premiums with each renewal. At first, the premiums might not increase much, but once you hit the 20th renewal, the premiums usually increase quite a bit.

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Decreasing Term Insurance

If you take out life insurance for the sheer purpose of covering a large financial obligation, such as a mortgage, you may benefit from the decreasing term life insurance. This policy has a decreasing value with each passing year. By the final year, it’s worth nothing. Unfortunately, your premiums don’t decrease like the coverage does, but they are based on the lower coverage amounts through the years. Many people with a mortgage take this policy as it covers them when they owe a large amount of money on their mortgage and it decreases as they pay off their mortgage and become financially independent.

Return of Premium Policies

The return of premium policies seems like a dream come true. You take out a policy to cover you in the event of your death. If you are alive at the end of the term, the life insurance company returns the premiums paid. You can expect to pay higher premiums for this policy, though, as the insurance company takes a big risk in offering it. If you outlive the policy, they have to refund you the money you paid. Keep in mind, though, the money you receive back does not include interest, which could become quite the loss.

The type of policy you should choose depends on your situation. Do you need coverage just while you have a mortgage? Are you trying to make sure your children are able to go to college even if you pass away before then? What type of premiums can you afford? These are the questions you must ask yourself to determine what’s right for you. Life insurance can be a complicated purchase, which is why it’s important to talk to several agents to see what options are available to you.

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