The Ultimate Term Life Insurance Benefits Guide

This Term Life Insurance Benefits Guide was designed to help you understand your term life insurance policy, its benefits and answer your questions.

What are some Term life insurance benefits?

A major benefit of term life insurance is it will offer you affordable death benefits and protections for your designated beneficiaries.  You will typically pay a monthly or annual premium for your term life policy.  It will then provide a death benefit for that payment.

You may have acquired a term life insurance policy on the life of another person or on your own life. It may have been acquired for a business associate or for a family member.

You will have control over several policy features as the policy holder to the insurance. The person whose life is covered by the policy is called the insured.

Your policy is called term life insurance due to being designed to remain in force for a specific amount of years.

The policyholder and insured are typically the same person, but this is not always the case.

A term life policy is the kind of policy that’s designed to protect the needs that you predict will last for a certain amount of time.  Your term life insurance policy will not build a cash value.

Typically, your premiums will be paid each year and will come in 2 types

1. Level

2. Increasing

You will have the same premium for a predetermined number of years with a level premium term policy.  The number of years is defined in the policy.  You have term life policies that will end at that predetermined time.

There are other policies that can stay in force if you pay increasing premiums every year after your initial term. There are other types of policies that will feature a premium that increases from the start.  This is so your premiums will be lower at the beginning, but increase each year.

If you purchase a term life policy, it will only provide you protection with a death benefit.  It will not have a cash value accumulation feature like whole life insurance.

Whole life is a permanent life insurance policy that will offer you fixed premiums.  It also has preset protection amounts with a cash value accumulation.

There is also Universal life.  It is another type of permanent life insurance that is flexible.  It’s flexible with both premium payments and the death benefit amount while it builds a cash value.

DIFFERENT TYPES OF TERM LIFE INSURANCE

Did you know that there are different types of term life policies?  They are all typically referred to generically by the name on the front page of your term life policy.

It is usually called Renewable Term Life Insurance Policy.  Your Policy Specifications pages will indicate if your policy begins with low premiums that rise every year or starts with level premiums.

Your Policy Specifications Pages can also state the marketing name for your term policy that was purchased.

HOW WILL MY TERM LIFE POLICY WORK?

Your independent insurance agent will help you with this.  Your agent will assist you with the selection of the type of policy, the death benefit amount for the policy, as well as the amount of desired premium you’d like to pay.

You will also have the opportunity to add one or several riders to your term life policy.

Your Term Life Premium Payments

Your premiums are payable every year during the term of the insurance policy.  Your policy will specify when the premiums are due.

The least expensive method will be to pay annually.

You may be able to pay for your policy semiannually, quarterly, or monthly.

However this can often be at an additional charge.  It is fairly common to have to pay via automatic bank draft if you want to pay monthly.  Your premiums will be paid in advance of the period in which they apply.

What about Re-entry?

You may requalify for a new term policy when your original term life policy ends.

For example, let’s say you purchase a term life insurance policy with a level premium for 20 years.

You may be able to reapply for a new term policy at the end of the 20th year.  Now your new term policy will have current rates available at that time if you continue to qualify for the favorable rates.

In order to qualify you will have to establish favorable insurability.  This is a process that is called reentry.

What if you can’t qualify of reentry?

If the original term life policy allows, you can still continue the original term policy at the premium rate that’s guaranteed in your policy.

What About Renewing Your Policy? 

Did you know that you renew your term life policy every time you pay your premium?  You are renewing your policy every year for the full term of the insurance policy by paying your due premium.

However, your policy can’t be renewed beyond the final term date that is shown on the Policy Specifications Page.  Remember that some policies will end after a set time period.  Other term life policies can be renewed to a certain specified age.

Converting Your Term Life Policy

Conversion is an important feature.  It’s possible that your term life policy can be converted to a brand new permanent life policy on the insured’s life.  This may occur within the timeframe that is specified in your term life policy.

A great feature of conversion is that you don’t have to show insurability when you convert.

In order to convert your policy, your policy has to be in force and your premiums have to be paid to the date of conversion.

There are some term life insurance policies that will offer limited conversions to specific permanent life policies.  There are others that will guarantee conversion to any whole life, universal life, or variable universal life policies that are offered at your time of conversion.

Your conversion date might occur at any date a premium is due for your policy up until the last day that’s allowed for conversion.  The amount of the new life policy will be limited to the part converted of the term life policy. Your premium for the new life policy would be at the then published rate of the permanent policy for the insured’s age at that particular time.

When seeking conversion, the insured has to be alive on date of conversion.  You can still have the same riders when you convert your policy (where available).  This may occur as long as the insured isn’t above the issued age limit.

A waiver of premium for Total Disability Rider may convert if you aren’t presently disabled.

What if you currently have a disability?

You have to wait until the conversion expiration date in order to convert to the permanent policy and your premiums will continue to be waived on the new permanent life policy.

As always, check with the company for specific conversion information because these practices can change at any time.  There are varying term insurance policies that have varying conversion privileges.

Always check your policy.

The Death Benefit 

The life insurance death benefit is paid to the beneficiary when the insured passes away.  This is of course if the life policy is in force at the time of death.

The death benefit is the face amount stated in your policy.

It can be increased by additional life insurance benefits that you may have purchased.

The proceeds of the death benefit typically pass to the beneficiary income tax free under the current tax law.

Q&A

How can I make changes to my term life policy?

Do you need to make a beneficiary change? Have you moved and need to update your address?  Any changes that need to be made should be communicated to your independent agent.

Oh no, I forgot to pay my premium!  What do I do?

Check your policy information, but you typically have a 31-day grace period from your due date to pay any premium after the first premium.  If you do not pay the life insurance premium by the end of your grace period, the policy will lapse.

If death occurs within your grace period, life insurance companies will typically consider the life policy to be in force.  The company will subtract any premiums from the death benefit.

Can I reinstate my life insurance policy?

Many companies will reinstate your life policy if it ended due to not paying your premium.  For example, you may reinstate the policy within 5 years as long as certain conditions were met.

What kind of conditions?  You may have to provide the company with evidence that you are currently insurable like when you first got your policy.

Secondly, your current health status will typically have to be similar as it was when you first purchased the life policy.  This is in order to get the same coverage that you previously had.

And lastly, you have to pay back all the past premiums that were due as well as an annual interest amount. OUCH!  Long story short: Don’t miss your payments!

How can I take out a loan on my policy?

You can’t.  Remember that your policy is a term life policy and it doesn’t have cash value in it to borrow.

How do I convert my term life insurance policy?

Always get in touch with your agent to go over term conversion options. If you are not sure when you can convert or when the conversion privileges end, you should contact your agent.

What happens if my term life insurance policy ends?

Your term life insurance is made to last a certain number of years.  Remember that many term life policies are renewable over a long period of time, but the premiums will typically get very high at the older ages.

Your life changes over the years.  Always consider this with your life insurance needs and when purchasing a policy.

It’s good to know that many term life policies have conversion options that will allow you to exchange your term life policy for a permanent policy.  Your term life insurance policy has to be in force when the insured passes away in order for the company to pay the death benefit to the beneficiary.

What are the Policy Limitations or Exclusions? 

Your policy will contain certain limitations that you should know. Typically, no death benefit is paid if a death should occur from the insured’s suicide within the first 2 policy years.

However, premiums paid up until that point would be returned to you.

Life insurance companies have relied on the information that you provided them when you applied for your life insurance policy.

They can refuse to pay the death benefit if there are material misrepresentations are made on the application and the insured passes away within the 1st 2 policy years.

For example: when the insured indicated on the application that they didn’t smoke to get a lower non smoker rate.

A company may deny the payment of the death benefit if you happen to pass away within those first 2 years from the date the life insurance policy was issued.

What happens if I lose my copy of the policy?

Often times a duplicate copy of your life insurance policy can be acquired by writing to your life insurance company. Some companies may charge fee may to replace a lost policy.

Optional Term Life Insurance Riders

Life insurance riders provide you extra coverage to your basic term life insurance policy.  Here are some examples of riders that you may choose to take advantage of.

Waiver of Premium for Total Disability Rider

This rider waives payment of premiums if, and while, the insured is totally disabled, once a waiting period has been satisfied.

Accidental Death Benefit Rider

This will provide you an additional death benefit if the insured’s death results from accidental injury and occurs within 180 days from the date of the accident.

Guaranteed Purchase Option Rider

This provides you the right to purchase additional life insurance coverage, in predetermined amounts and dates, even if the insured is no longer insurable.

Family Term or Children Rider

This will provide term life insurance coverage on the insured’s child or children.

Accelerate Death Benefit

This typically allows the policyholder to receive a percent of a policy’s death benefit, but not over a certain amount, if the insured is diagnosed as terminally ill with 12 months or less to live. There may be a charge to exercise this rider. Receipt of benefits under this rider may be taxable to you. Please consult your tax adviser before exercising this rider.

Riders vary by company, state and by product.

GLOSSARY

Conversion Privilege:

your policy may be converted (changed) to a new permanent policy on the insured’s life without having to provide evidence of insurability within the conversion time frame of your policy. To exercise your conversion privilege, the policy must be in force and premiums must be paid to the conversion date.

Conversion Date:

This is the date your term life insurance policy is converted to a new permanent life insurance policy. You may choose any date a premium is due for the policy until the last day allowed to convert.

Death Benefit:

This is the amount payable to the beneficiary at the time of the insured’s death. Death benefit is also referred to as the face amount.

Yearly Renewable Policy:

This is a term life insurance policy with yearly increasing premiums that can be continued each year by payment of the premium due until a specified age.

Conclusion

Hopefully this Ultimate Term Life Insurance Benefit Guide was helpful in answering questions and providing information about the benefits and features of term life.

As always, please contact us if you have any questions about your life insurance needs.

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