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Best Types Of Term Insurance To Buy - Level Or Annual-Renewable

Term insurance is the least expensive type of life insurance coverage. Premiums are significantly lower than other types of policies, allowing you to purchase a high face amount. The combination of flexibility, easy-termination, and guaranteed fixed-premium schedule allows you also to plan and coordinate your total personal finances more effectively. Policies are very customizable, and it's an affordable option to create an immedite estate to help pay taxes and other financial obligations.

 

Level Term Insurance

Level Term insurance is the most popular form of coverage. Both the face amount and premiums remain level for a specified amount of time. The most common lengths are between 5 and 30 years. Naturally, the longer the length of coverage, the more expensive the plan becomes. This type of policy is issued by most of the major life insurance companies, along with many smaller carriers. It's not unusual for a specific carrier to offer very competitive rates for one specific plan (10-Year Level Term, for example), and also feature fairly high prices for another type of plan (20-Year Level Term, for example).

While premiums are very low on a 5 or 10 year level term policy, when the contract expires, and if you wish to continue coverage, you will have to re-qualify medically to secure a preferred rate. If your healt has drastically changed, the insurance company can choose to continue coverage, but it could be at an extremely high price.  However, if your health is still good, you may apply for additional coverage, and choose a new face amount and length of time. Of course, other companies should also be considered, since your new age will likely result in different carriers now offering the least expensive prices.

 

Annual Renewable Term Insurance

Annual renewable term insurance was the most popular type of term insurance in the 1980s. Although this type of coverage is still offered, its popularity has sharply reduced since premiums increase gradually every year. Most annual renewable term policies allow you to continue your coverage despite a major change in your health. But since your rate increases each year, after 5-12 years, this type of policy almost always becomes more expensive than a level term plan. Often, the rate the first year is more expensive than a 5 or 10-year plan. Unless your employer is paying a substantial portion of the premium, other options are more cost-efficient.

Although premium projections are provided with this type of coverage, there is no guarantee that premiums will remain at that level. In fact, in past years, many insurers have raised rates higher than the projected rate. Another criticism of this type of coverage is how rapidly premiums increase in later years. While rate increases are fairly small for ages under 45, rate increases can be quite substantial for insureds over the age of 60. And often, the policy can not be renewed by age 70. At that time, "final expense" plans for much lower face amounts are available.

 

Group Employer Term Life Insurance

 

Group Term Insurance

Group term coverage is often available through an employer, and the initial amount is typically automatically approved, regardless of your medical history. While rates aren’t necessarily low, often the employer pays a portion (sometimes a large portion!) of the premium, making it a nice addition to your group insurance portfolio. Rates are often fixed for five years before increasing. Since group coverage is lost if you leave your employer, it is always recommended to own other life insurance coverage.

Often, upon retirement, employer-provided coverage can be converted to an individual plan, but the rate will dramatically increase. Cash value may accumulate (dividends, guaranteed cash value, or investment earnings), but withdraws will likely impact performance of the policy. Typically, if retired employees elect to convert their employer-provided plan, it is generally only a portion of the guaranteed amount. For instance, if $250,000 is available, perhaps $25,000-$100,000 is actually converted.

IRC Section 79 allows for an exclusion for the initial $50,000 of group-provided term coverage by an employer for the employee. Age and health do not impact the exclusion. Amounts provided in excess of $50,000 will be subject to taxation, utilizing the "IRS Premium Table." No taxable event occurs if the employee is paying the premium. Publication 15-B provides additional clarification.

Spouse and dependent coverage paid by the employer, is not considered taxable to the employee, if the face amount does not exceed $2,000. Often optional term coverage is provided, but is not paid by the employer. In many of these situations, purchasing a private policy may be less expensive, especially if there are no significant health issues.

 

Decreasing Term Insurance

Often referred to as “mortgage insurance,” this type of policy features a decreasing face amount of coverage that eventually reduces to zero. Premiums remain level throughout the term of the policy. Although popular in the 1980s and 1990s, decreasing term contracts are not often marketed, and many carriers no longer include them in their portfolio of products. The increased number of refinaced mortgages is also a factor in the reduction of available plans.

The most common use for decreasing term insurance is for the protection of the home mortgage. Coverage can be designed to decrease at the same rate as the balance of the mortgage. However, if you refinance, or add a second loan,  the initial policy may no longer adequately cover the intended need. Applying for new coverage is often an option to consider, although its likely the premium will be higher. Often, mortgage and lending companies offer this type of benefit to customers who recently financed their property.

 

Return Of Premium Term Insurance (ROP)

Return of premium term policies provide a feature that can potentially give back the premiums you paid, while maintaining level protection while you own the policy. Typically, the duration of coverage lasts between 20 and 30 years. If you keep the policy its entire duration, you are "returned" all of the premiums that you paid. The policy must not lapse. and the insured must be living. Several carriers will reimburse a portion of the premiums if you terminate the policy early. Also, depending on the policy, this benefit may be offered as a rider to a standard contract, instead of a stand-alone product.

The major advantage of this concept is the reward of getting back all of your premiums, instead of losing all monies to the insurer. It's a convenient method of forced-savings, although the rate of return is not significant. And since the rate is about 30% higher than a conventional term policy, unless the contract is kept for the full term, it's not a cost-effective option. 

 

Current ROP Term Monthly Rates Below. Plan Availability May Vary By State 

 

$250,000 20-Year Guarantee 40-Year-Old Male

$76 - Prudential (Preferred Plus)

$92 - Prudential (Preferred)

$113 - Prudential (Regular Plus)

$133 -Prudential (Regular)


 

$250,000 20-Year Guarantee 50-Year-Old Female

$135 - Prudential (Preferred Plus)

$159 - Prudential (Preferred)

$200 - Prudential (Regular Plus)

$245 -Prudential (Regular)

 

$100,000 10-Year Guarantee 60-Year-Old Male

$221 - Prudential (Preferred Plus)

$257 - Prudential (Preferred)

$287 - Prudential (Regular Plus)

$288 -Prudential (Regular)

 

Term insurance provides maximum coverage at an affordable rate. We help you find the best plan for your particular situation. And since rates are regulated by the state, we guarantee you’ll receive the lowest allowable rate from a high quality insurance company. And of course, your personal information is never shared with any other person or company.