Term Life Insurance – FAQ
Our clients ask us often regarding term life insurance.
Here are some of the most common questions that they share, so we answered them below:
What is Term life Insurance?
1. Are term life insurance premiums fixed?
You might have the question “are term life insurance rates locked in?” in your mind when buying term life insurance. The answer to this question is “yes, they are.”
Purchasing a term life insurance plan when you are young can help lock in an inexpensive rate for the duration of your life coverage. It will only increase incrementally each year you age.
If you outlive the term, the policy expires and you stop paying.
2. Can term life insurance be renewed?
Yes, it can. But it is recommended to purchase a longer term life insurance policy (e.g. 30 year) than a shorter term life insurance policy (e.g. 15 year) and then renew another 15 year term life policy because the former is less expensive than the latter. When you buy term life insurance later in life the premium will be higher based on your age and health condition.
3. Can term life insurance be extended?
Yes, it can. policyholders can extend or renew the insurance, but the new monthly premium will be based on the person’s age and health at the time of the renewal. As a result, the premiums could be higher for the renewed policy versus the original term policy that was initiated when the individual was younger.
4. Can term life insurance be cancelled at any time?
Yes, your term life insurance can be cancelled at any time. But when you cancel your policy that affects whether you will be able to get any of your payment for the premium back.
If you suddenly would like to get out of your term life insurance policy, you can cancel it without any penalty if you are still within the grace period which is the time right after purchasing a life insurance policy. If you can carry out the cancellation within the grace period, you will get full refund of any premiums you paid.
The grace periods are from 10 to 30 days which vary from life insurer to life insurer. After the grace period comes to an end, you lose any life insurance premiums paid if you cancel your term life insurance policy.
5. What length of term life insurance should I get?
The length of term life insurance you should get depends on three factors, namely, the extent of coverage you need, the level of your affordability and the extent you qualify for.
For instance, if you have a 15-year mortgage, then you will want a 15-year term so that those mortgage payments are protected, as long as you continue to pay the premiums. Likewise a 20-year term policy will cover you for 20 years. If you die during that time, your beneficiaries will receive a death benefit.
To keep your loved ones away from your financial obligations, opt for a term length that covers your financial obligations.
6. When is term life insurance a good idea?
Buying term life insurance is always a good idea when you are young because you can lock in an inexpensive rate than when you get older. Term life insurance is also a good idea if you are the family breadwinner and need it to pay off your mortgage or the remaining debts your family has.
7. Does term life insurance have a cash value?
Term life insurance does not typically accumulate cash value like permanent life insurance policies such as whole life or universal life insurance. It focuses primarily on providing a death benefit to beneficiaries rather than building cash value over time. Unlike whole life or permanent life insurance, term life insurance has no cash value.
8. Does term life insurance premium increase?
Term life insurance premium increases as you get older and if your health worsens. Renewal premiums are based on the insured’s age at the time of renewal, with older ages generally resulting in higher premiums.
9. Does term life insurance cover accidental death?
Term life insurance covers both accidental death and death due to a natural cause.
10. What are typical term life insurance exclusions?
Misreporting: If the life insurer you purchase a term life insurance policy from finds out that you gave false information for any personal details, then you are not entitled to your death benefit.
Illegal wrongdoing: When the death of someone stems from illegal wrongdoing including drug deals, drug or alcohol abuse or vehicle crashes due to driving under the influence (DUI), their family members cannot make a claim for their death benefits.
Committing Suicide: If you kill yourself within two years of purchasing your policy, they are not entitled to death benefits.