The Different Types of Term Insurance

Annual Renewable Term
The first and most straight forward arrangement for a term insurance product is to have your insurance renewable after every year. Each year is treated as a single product purchase and has very little that is connected with the coverage the year before. Very simply, the death benefit will only be paid by the insurance company if the insured person dies within the coverage period of the year. Every year, you can renew the policy but you will be subjected to a medical test and the full barrage of forms to fill out again.

This type of arrangement for term life insurance is by far the cheapest option available. This is because of it being extremely unlikely that a person will die within the coverage period of one year. It is extremely rare that people fall sick and die within a year. Illnesses normally take years to kill a person. It is also for this reason that this type of coverage is also rare. Very few people actually invest in this type of insurance because there is no guarantee of coverage. If the insurance company thinks that there may be something wrong with you then they can easily not renew your policy and you are left stranded. Previously, when the general public was less knowledgeable, this term insurance arrangement was preferred because it was the cheapest. Now it is one of the least popular as it gives a nearly false sense of security.

The trick when dealing with annual renewable term insurance is to keep yourself in the range or insurability. If you keep yourself “insurable” at the start of every insurance coverage period then you stand to save many thousands of dollars compared to people who have guaranteed renewable insurance coverage. The trick is to make the insurance company believe that no matter what condition you might be in that you are actually validly insurable. Once you have signed the dotted lines and you are presented with the contract and you did not lie in any of the contract agreements, the insurance company simply has to pay out the death benefit, even if you only pay a small faction of the premium compared to other term insurance holders.

It is when you have a terminal illness that annually renewable life insurance becomes a real pain. This is because every year you will have to go through a health screening and most illnesses that you have will be picked up by the screening. If you have a terminal illness the insurance company will simply not offer you the policy for the coming year. This is where most people get stuck and is one of the major short falls of the annual renewable type. It is as if the insurance company can pick and choose which policies to pay-out and which they don’t want too but are given a year in advance to decide. In most cases, this can be quite terrible for people who have terminal illnesses as they will often be left hanging by their insurance companies.

In response to the outcry of many insurance holders about the shortfalls of normal annual renewable term insurance products, many insurers have changed the structure of their term insurance products. This has made way for the development of the annually renewable term insurance that has a guarantee of insurability over the next few years. The period of renewability is very much determined by the insurer, however is generally between 10-30 years from the start of the insurance coverage. The thing is that this type of term insurance is generally much more expensive than the normal annual renewable term insurance as there is much more risk that the insurer sees. The insurance premiums are not predetermined and thus the insurer has the right to charge whatever premium they choose within reason. Generally, as the insure ages, the premium will raise in the increasing scale. At a certain point the insurance product will become so expensive that it doesn’t make financial sense to continue with the insurance policy.

Level Term Life Insurance
The more common type of term insurance is the level term life insurance type. This is where you begin the insurance policy with a pre-agreed guarantee for the amount of years that he insurance policy will cover. The most common lengths are anywhere from 5-30 years. The main difference between this type of insurance policy versus a guaranteed annually renewable policy is that all the premiums payable until the end of the contract are stated in plain sight.

Most of the time the level term life insurance policies have a premium that increases slightly over the years. This is to take into the consideration of the reducing value of money, the increased risk of mortality and also the additional costs or levies that might be imposed for having a longer than normal guaranteed coverage period. Generally, the longer the contract is for, the more expensive it is going to be.

As with the annual renewable term insurance, when the term of the insurance contract is up, meaning that the 5-30 years guarantee is done then it is up to the insurance company to choose if they want to offer you further insurance coverage. There is no guarantee of insurability in this case. Most of the time insurance companies will need proof of insurability meaning a thorough medical examination has to be conducted before an insurance policy is offered. In most circumstances, if you health is good and you don’t have any terminal disease, the insurance company will offer you a policy extension. The policy will however be expensive as you are much older now and your mortality rates are quite the bit higher.