Stick with me for two minutes, and you’ll get a better grasp of guaranteed term life insurance than most life insurance agents. It’s not difficult to understand, but most agents only ever learn the benefits of term insurance, rather than how it actually works.
Guaranteed Issue Vs. Guaranteed Premium & Death Benefit
It’s important to understand first of all, that there is a type of life insurance known as guaranteed issue. This is where it doesn’t matter even if you have terminal cancer. You’re guaranteed to qualify at astronomical premiums. This article refers to the type of term life coverage that you must qualify for medically, and the “guaranteed” adjective refers to the premiums that are guaranteed to stay level for the duration of the term and a death benefit that is guaranteed not to decrease as long as you pay your premiums.
How Term Life Insurance Premiums are Calculated
The insurance carrier has a different price it charges to insure you for every year you live. So say you’re 40 years old in good health and you apply for term insurance for $500,000. The true cost to insure you for that one year of life might be $12 per month. But next year you turn 41. You’re one year closer to dying, so it costs a bit more to insure you. At age 41, it might cost $13 per month. From age 40 to 49, your monthly premiums might increase on a schedule as illustrated below:
40 - $12 mth
41 - $13 mth
42 - $13.50 mth
43 - $14.50 mth
44 - $17 mth
45 - $18.50 mth
46 - $20 mth
47 - $22 mth
48 - $25 mth
49 - $28.50 mth
So you see at it’s core, term life insurance is like auto insurance. If you get a speeding ticket or a dwi, your auto premium goes up because you’re riskier to insure. With life insurance, as you get older, you’re closer to dying so every year you live, you’re riskier to insure, and your premium goes up accordingly. And that’s term life. Each year you pay for a 1 year term. Occasionally I see these term policies whose price increases every year, known as guaranteed renewable. Most people, however, buy a different type of term insurance, called guaranteed level term.
So here’s what the insurance carriers came up with. Rather than increase your premium every year, they take an average of your cost for a block of years, like 10 years, and charge you a fixed, level premium the entire 10 year period, and it’s guaranteed not to increase during that term. And that’s called level 10 year term. For example, in the schedule of premiums above from age 40-49, if you add those numbers up and divide by 10, you’ll get about $18 bucks. If you’re a 40 year old and want a 10 year term product, that’s about what you’ll pay.
There are all sorts of term: 5, 10, 15, 20, 25, 30, and even 40 year term. American General even has a product called Select-A-Term where you can pick an off-the-wall term length like 23 years. There is even a type of term life insurance that returns your premiums. I have also created a post on this which includes a short video, and can by clicking here: Term Life Insurance that Returns Premiums.
Now at the end of these level guaranteed terms, the policies don’t just cancel. They typically renew annually, at a much higher non-guaranteed rate, up to age 90 or 95, without proof of good health. So you could potentially end your level premiums at age 70, then pay through the nose on an annually renewable basis for five years and die at 75. When the insured attains age 70 he might not be too healthy, and go ahead and pay that rate. This is a big advantage to guaranteed term life insurance.
Term Life insurance differs from whole life in that it is supposed to be used for temporary coverage, whereas whole life is designed to build cash value and cover you for your entire life. I also work with universal guaranteed life insurance companies, who sell guar. UL products, which I choose to endorse rather than whole life insurance. For more information, go to my article about Universal Life Insurance Quotes.
For term life insurance quotes, use the form on the right. You will instantly see your quotes on the next page. No having to fill out 3 pages of questionnaires like on other life insurance websites. This one is truly hassle-free, instant quotes.
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