Term life insurance is pure protection that covers you for a specific period of time. It is the lowest-cost type of life insurance. Term has many uses, such as income replacement should you die while still having financial responsibilities, to business planning as in the case of Key-Person coverage or Buy-Sell Agreements.
But are all Term policies the same? In a word, no. There are actually 6 types of Term life insurance policies available. Below is a description of each type, and its best use.
Guaranteed Level Term – 10, 15, 20, 25, 30 Years
All level premiums are scheduled and guaranteed for the full term length.
Ideal for income replacement needs such as: coverage until you retire, pay off your mortgage, or until your children graduate college.
Year Specific Level Term – 10, 15 through 30 Years
Ex: 17 Year Term, 24 Year Term, ect.
Best used if your coverage need doesn’t fit typical term lengths.
A 45 year old who wants coverage until he/she retires at their Social Security age of 67, will find a 20 Year Term to be too short, and a 25 Year Term to be too long and more expensive. The solution would be an affordable 22 Year Term.
Return of Premium (ROP) Term – 15, 20, 30, 35 Years
At the end of the term period you get all your premiums back.
Ex: 30 Year ROP @ $2,000 annually = exactly $60,000 refunded at the endof 30 years, no more no less. Premiums are higher for an ROP Term compared to a standard Term policy.
Survivorship Term – 10, 20, 30 Years
This type of policy (just like the permanent version) pays the death benefit only after the 2nd insured dies. Survivorship Term can also convert to an individual or joint permanent policy after the term period ends.
Survivorship Term is best suited for estate tax planning, as estate taxes are due upon the death of the surviving spouse.
Non–Med Term – 10, 15, 20, 30 Years
Uses a streamlined underwriting process requiring no medical exams, maximum face amounts of up to $350,000.
Ideal if your coverage needs aren’t high, and if you don’t want to go through a medical exam, but you still are generally healthy.
Annual Renewable Term (ART) – 1 Year
Coverage is for one year, and you must prove insurability again if you renew.
Typically used for short-term (1 year or less) business debt coverage needs.
*This blog is strictly the opinion of Michael A. Malleo and not those of ASH Brokerage Corp., Quest Capital Strategies, Inc., nor any of our affiliates. Malleo Financial Services LLC cannot and will not give any specific tax or legal advice. Please consult your tax professional or legal professional for such advice.