Term Life Frequently Asked Questions
Go Ahead.Ask
Q: What is term life insurance?
A:Term is the lowest cost life insurance product available. When you buy term
life, you are purchasing "pure" insurance that typically does not include a cash value or a savings feature. Term Life insurance, as the name implies, is purchased for a particular "term" or length
of time. Once that term period has arrived, and you do not convert your term policy to a "permanent" type, your life insurance policy will expire. If the insured dies within the "term period," the
predetermined death benefit will be paid to the beneficiaries.
Q: What are the benefits of Level Term vs. Yearly Renewable Term?
A: Level term insurance includes low premiums and steady coverage over the
term of the policy. In other words, your premiums do not go up and your coverage does not go down as long as your premiums are current. "Annual" or "Yearly Renewable Term" offers the lowest initial
cost life insurance available. Premiums for this type of life policy will start out very low; however, the premium will increase each year. In general, Yearly Renewable Term policies are most
efficient during the first 3 to 4 years. If you plan to keep your policy for longer than 3 to 4 years, you should consider Level
Term.
Q: What can term insurance do for my family, my business and me?
A:Term insurance is bought by millions of people for a number of reasons.
Families use Term for security. In case the insured passes away, your Term policy insures there will be money to use to pay for your home, college, outstanding loans and other major expenses. Small
Business Owners use Term insurance as low cost debt protection to cover notes, lease obligations, business real estate mortgages and other expenses.
Business Partnerships often use Term Insurance to buy out partners in the event of their death. For example, the deceased's beneficiary
gets the insurance proceeds and the ownership in the company is then transferred to the remaining partner(s).
Corporations use Term as stock purchase redemptions. In this case, the corporation gets the insurance proceeds and buys back the stock
from the deceased's beneficiary, normally the surviving spouse or estate. For businesses, Term Insurance can provide real benefits for the beneficiaries with no negative cash flow impact on the
company.
Q: How is an individual rated?
A: Individuals are rated by their age, health history and in some cases, by
their careers. Younger people generally have lower premiums.
Q: What riders are available?
A: Riders or options are available at an addittional cost with some policies. These may
include:
- Waiver of Premium Rider (WPR) If you become totally disabled prior to age 60, the premiums are
waived.
- Accidental Death Benefit Rider (ADB) If the insured dies from accidental death prior to age 70.
- Child Protection Rider (CPR) You may add your children to the policy. The premium is the same no matter how many
children are covered.
- Accelerated Benefit Rider (ABR) This allows a one-time lump sum payment of up to 25% of the base policy benefit,
with maximums typically of $25,000 for terminal illness with less than six months to live, major organ transplant (heart, lung, liver, pancreas) or nursing home confinement for the remainder of
life.
Q: Reasons NOT to buy term insurance:
A:Term life is a good choice for many people, but NOT for the following reasons:
- To fund expected federal and/or state estate tax obligations.
- To fund an irrevocable life insurance trust.
- To fund trusts for the purpose of providing an estate.
- These reasons would be better served with permanent life insurance, either whole life or universal life. We
suggest you seek counsel from your estate tax attorney, financial planner, or your CPA.
