Life Insurance Questions & Answers: Term Life
Term Life Q&A
Showing 5 questions
How do you help a client decide between term and whole life insurance?
By asking the right questions.Determining if they're looking for something short-term (out of work, bought a house, had a baby, etc) or permanent (wanting to build cash value, static premium for life as long as premiums are paid). Finding this out alone can guide the conversation.
In some cases, maybe the client has less resources but expects to have some within a period of time. Since term life is less expensive for a larger death benefit, sometimes this makes sense until they can get into a whole life policy.
Ultimately, learning their overall goals and needs is critical for guiding them in this decision. Oftentimes clients will have a blend of both.
What's the difference between term and whole life insurance?
To keep it simple term lasts for a certain amount of time for example 20 year term for 1 million dollars is $100 a month. None of that changes during the 20 years as long as premiums are paid. It is the greatest value for the dollar. Whole life is permanent so the same million could cost $400 a month but depending on the policy it can be fully paid in a certain time frame and have the ability to purchase additional coverage even if you are not insurable. The solution is different for everyone.
What is the difference between level term and decreasing term life insurance?
**Level term life insurance** keeps the **death benefit the same** for the entire term.**Decreasing term life insurance** has a **death benefit that goes down over time**, usually while the premium stays the same or close to the same.
## Level term
Example:
You buy a **20-year $500,000 term policy**.
If you pass away in year 2, your beneficiary gets **$500,000**.
If you pass away in year 19, your beneficiary still gets **$500,000**.
Level term is commonly used for:
* Income protection
* Family protection
* Mortgage protection
* Children’s future expenses
* Debt protection
## Decreasing term
Example:
You buy a **20-year decreasing term policy** tied to a mortgage.
In the early years, the policy may cover close to the full mortgage balance. Over time, as the mortgage balance goes down, the life insurance benefit also goes down.
Decreasing term is commonly used for:
* Mortgage protection
* Business loans
* Debts that shrink over time
## Main difference
| Type | Death benefit | Common use |
| ------------------- | ------------------- | --------------------------- |
| **Level term** | Stays the same | Family income protection |
| **Decreasing term** | Goes down over time | Mortgage or loan protection |
What is return of premium life insurance and is it a good deal?
Return of Premium (ROP) life insurance is a type of term life insurance that refunds some or all of the premiums you paid if you outlive the policy term. For example, if you purchase a 20-year return of premium term policy and are still living at the end of the 20 years, the insurance company may return the premiums you paid during that period.At first glance, this can sound very attractive because it addresses one of the most common objections people have to term insurance, namely that they may pay premiums for years and never receive a benefit. However, return of premium policies typically cost significantly more than traditional term life insurance policies.
In my experience, return of premium life insurance is usually not the best value for most people. The additional premium required to obtain the refund feature can often be invested elsewhere with greater flexibility and potentially better results. When I compare options for clients, a traditional term policy combined with a disciplined investment strategy is frequently the more efficient solution.
That said, there are situations where return of premium coverage may appeal to individuals who like the idea of having a guaranteed refund if they outlive the policy term and who value that certainty over maximizing potential investment returns.
As an independent agent representing virtually all major life insurance companies, I evaluate both options when appropriate. In most cases, however, I find that clients are better served by purchasing the coverage they need at the lowest reasonable cost and putting the premium savings to work in other areas of their financial plan.
Can you convert a term life insurance policy to permanent coverage?
Yes, term life can be converted to permanent coverage. However, there will most likely be a substantial increase on the monthly premium. But for some this might be a good thing if one's health has worsened to the point of being uninsurable.Browse Other Questions & Answers
How Life Insurance Works (23) Coverage (16) New to Life Insurance (13) Eligibility (12) Advice for Beneficiaries (10) Financial Planning (7) Advice for Families (7) Rates and Costs (7) Term Life (5) Whole Life (5) Riders and Addons (5) Life Events (4) Retirement (2) Universal Life (2) Agent Interview (1) Final Expense (1)Have a Life Insurance Question of Your Own?
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