Skills without mastery are useless. Mastery is impossible without the right methods. SimpliGrok platform makes mastery effortless and fastest with proven, smart practice.
Skills without mastery are useless. Mastery is impossible without the right methods. SimpliGrok platform makes mastery effortless and fastest with proven, smart practice.
Term life insurance is the simplest and most affordable form of life insurance. It provides pure death benefit protection for a specified period without any cash value or investment component.
Pure Protection
- Death benefit only - no savings element
- No cash value accumulation
- No policy loans available
- Most affordable option
- Premiums based on mortality risk only
Temporary Coverage
- Covers specific time period (term)
- Common terms: 10, 15, 20, 30 years
- Coverage expires at end of term
- No benefit if insured outlives term
Best Uses:
- Income replacement during working years
- Mortgage protection
- Debt protection
- Business obligations
- Children's education funding
- Temporary needs with defined endpoint
Characteristics:
- Death benefit stays the same throughout term
- Premiums remain level for entire term
- Most popular type of term insurance
Common Periods:
- 10-year term
- 15-year term
- 20-year term
- 30-year term
- Term to age 65 or 70
Advantages:
- Predictable premiums
- Substantial coverage
- Budget-friendly
- Simple to understand
Example:
- 30-year-old buys $500,000 20-year level term
- Pays $500/year for 20 years
- $500,000 death benefit entire time
- Coverage ends at age 50
Characteristics:
- Death benefit decreases over time
- Premiums usually remain level
- Often matches declining debt
Common Uses:
- Mortgage protection - Matches declining mortgage balance
- Business loans - Covers reducing debt obligations
- Income needs - Less needed as children grow
Decreasing Schedule:
- Typically decreases annually or monthly
- Follows predetermined schedule
- Can match specific debt amortization
Example:
- $300,000 initial death benefit
- Decreases by $15,000 per year
- After 10 years: $150,000 death benefit
- Matches $300,000 mortgage pay-down
Credit Life Insurance:
- Special form of decreasing term
- Creditor is beneficiary
- Death benefit equals loan balance
- Often overpriced
Characteristics:
- Death benefit increases over time
- Premiums typically increase as well
- Less common than level or decreasing term
Purpose:
- Keeps pace with inflation
- Growing family needs
- Rising income
Example:
- Start with $250,000 coverage
- Increases 3% annually
- After 10 years: approximately $335,000
- Premium increases accordingly
Characteristics:
- One-year coverage period
- Renews annually
- Premium increases each year based on attained age
- No long-term rate guarantee
Features:
- Renewable: Can renew each year
- Without evidence of insurability until specified age
- Premium increases significantly with age
- Maximum renewal age (often 70 or 80)
Advantages:
- Very low initial premium
- Maximum flexibility
- Can drop anytime without loss
Disadvantages:
- Premiums increase annually
- Becomes expensive at older ages
- Less predictable costs
Best For:
- Very short-term needs
- Temporary situations
- Bridge coverage
Definition: Right to renew policy at end of term without medical exam
Key Points:
- Guaranteed renewable - Cannot be denied renewal
- No health questions required
- No medical examination needed
- Premium increases at renewal (based on new age)
- Renewable to specific age (e.g., age 70 or 80)
- Must be in force at renewal date
Why Important:
- Health may decline over time
- Guarantees future insurability
- Eliminates underwriting risk
Cost:
- Higher initial premium than non-renewable
- Worth the extra cost for most buyers
Definition: Right to exchange term policy for permanent insurance without evidence of insurability
Key Points:
- Convert to whole life or universal life
- No medical exam required
- No health questions
- Usually within first 5-10 years or before age 65
- Original issue age may be used (more favorable)
- Or attained age used (current age)
Conversion Options:
Original Age Conversion:
- Premium based on age when term was issued
- More favorable rate
- May require back-payment of premium difference
- Less common option
Attained Age Conversion:
- Premium based on current age
- Higher premium than original age
- No back-payment required
- Standard option
Conversion Period:
- Usually expires after certain years
- Or at specific age (e.g., age 65)
- Check policy for exact timeframe
Why Important:
- Circumstances change
- Need for permanent coverage emerges
- Health may deteriorate
- Preserves insurability
Example:
- Bought term at age 30
- At age 40, want permanent coverage
- Can convert without medical exam
- Preserves coverage despite health changes
Definition: Term insurance requiring periodic health evaluation for lower premiums
How It Works:
- Lower initial premiums
- Must re-qualify every few years
- Pass medical exam to maintain low rate
- Or pay higher rate if can't re-qualify
Two-Tiered Pricing:
- Re-entry rate: Lower, if you re-qualify
- Non-re-entry rate: Higher, if you don't
Risk:
- Health deterioration increases costs
- May end up paying more than standard term
- Only beneficial if health remains good
Definition: Term insurance that returns all premiums if you outlive the term
Features:
- Significantly higher premiums (2-3x standard term)
- All premiums refunded if survive term
- Death benefit paid if die during term
- No cash value during term
Advantage:
- Get money back if don't die
- Feels less like "wasted" money
Disadvantage:
- Much more expensive
- Could invest premium difference elsewhere
- Return is not guaranteed by mortality
Best For:
- Buyers who want "something back"
- Disciplined savers
- Those who can afford higher cost
Choose Term When:
- Need is temporary (15-30 years)
- Budget is limited
- Want maximum death benefit for dollars spent
- Protecting against specific debt
- Income replacement during working years
- Young family with tight budget
Common Term Insurance Uses:
1. Mortgage Protection - Cover home loan
2. Income Replacement - Protect family's standard of living
3. Education Funding - Ensure children's college funds
4. Debt Protection - Cover consumer loans
5. Business Protection - Cover loans or partnerships
6. Estate Equalization - Provide inheritance to non-business heirs
30-year-old, $500,000 coverage:
- 20-year level term: ~$500/year
- Whole life: ~$4,500/year
- Universal life: ~$3,000/year
Why the difference?
- Term: Pure mortality cost only
- Permanent: Mortality + expenses + cash value
Advantages of Term:
- Lowest cost per $1,000 of coverage
- Simple and easy to understand
- Maximum protection for limited budget
- Flexible (can drop without loss)
Disadvantages of Term:
- No cash value
- Temporary coverage
- Becomes expensive at older ages
- May outlive coverage
- Eventually unaffordable or unavailable
Key Decision Factors:
1. How long is coverage needed?
2. What can be afforded in premiums?
3. Is cash value important?
4. Is coverage need temporary or permanent?
5. Are premiums expected to be affordable long-term?
Term life insurance is the simplest and most affordable form of life insurance. It provides pure death benefit protection for a specified period without any cash value or investment component.
Pure Protection
- Death benefit only - no savings element
- No cash value accumulation
- No policy loans available
- Most affordable option
- Premiums based on mortality risk only
Temporary Coverage
- Covers specific time period (term)
- Common terms: 10, 15, 20, 30 years
- Coverage expires at end of term
- No benefit if insured outlives term
Best Uses:
- Income replacement during working years
- Mortgage protection
- Debt protection
- Business obligations
- Children's education funding
- Temporary needs with defined endpoint
Characteristics:
- Death benefit stays the same throughout term
- Premiums remain level for entire term
- Most popular type of term insurance
Common Periods:
- 10-year term
- 15-year term
- 20-year term
- 30-year term
- Term to age 65 or 70
Advantages:
- Predictable premiums
- Substantial coverage
- Budget-friendly
- Simple to understand
Example:
- 30-year-old buys $500,000 20-year level term
- Pays $500/year for 20 years
- $500,000 death benefit entire time
- Coverage ends at age 50
Characteristics:
- Death benefit decreases over time
- Premiums usually remain level
- Often matches declining debt
Common Uses:
- Mortgage protection - Matches declining mortgage balance
- Business loans - Covers reducing debt obligations
- Income needs - Less needed as children grow
Decreasing Schedule:
- Typically decreases annually or monthly
- Follows predetermined schedule
- Can match specific debt amortization
Example:
- $300,000 initial death benefit
- Decreases by $15,000 per year
- After 10 years: $150,000 death benefit
- Matches $300,000 mortgage pay-down
Credit Life Insurance:
- Special form of decreasing term
- Creditor is beneficiary
- Death benefit equals loan balance
- Often overpriced
Characteristics:
- Death benefit increases over time
- Premiums typically increase as well
- Less common than level or decreasing term
Purpose:
- Keeps pace with inflation
- Growing family needs
- Rising income
Example:
- Start with $250,000 coverage
- Increases 3% annually
- After 10 years: approximately $335,000
- Premium increases accordingly
Characteristics:
- One-year coverage period
- Renews annually
- Premium increases each year based on attained age
- No long-term rate guarantee
Features:
- Renewable: Can renew each year
- Without evidence of insurability until specified age
- Premium increases significantly with age
- Maximum renewal age (often 70 or 80)
Advantages:
- Very low initial premium
- Maximum flexibility
- Can drop anytime without loss
Disadvantages:
- Premiums increase annually
- Becomes expensive at older ages
- Less predictable costs
Best For:
- Very short-term needs
- Temporary situations
- Bridge coverage
Definition: Right to renew policy at end of term without medical exam
Key Points:
- Guaranteed renewable - Cannot be denied renewal
- No health questions required
- No medical examination needed
- Premium increases at renewal (based on new age)
- Renewable to specific age (e.g., age 70 or 80)
- Must be in force at renewal date
Why Important:
- Health may decline over time
- Guarantees future insurability
- Eliminates underwriting risk
Cost:
- Higher initial premium than non-renewable
- Worth the extra cost for most buyers
Definition: Right to exchange term policy for permanent insurance without evidence of insurability
Key Points:
- Convert to whole life or universal life
- No medical exam required
- No health questions
- Usually within first 5-10 years or before age 65
- Original issue age may be used (more favorable)
- Or attained age used (current age)
Conversion Options:
Original Age Conversion:
- Premium based on age when term was issued
- More favorable rate
- May require back-payment of premium difference
- Less common option
Attained Age Conversion:
- Premium based on current age
- Higher premium than original age
- No back-payment required
- Standard option
Conversion Period:
- Usually expires after certain years
- Or at specific age (e.g., age 65)
- Check policy for exact timeframe
Why Important:
- Circumstances change
- Need for permanent coverage emerges
- Health may deteriorate
- Preserves insurability
Example:
- Bought term at age 30
- At age 40, want permanent coverage
- Can convert without medical exam
- Preserves coverage despite health changes
Definition: Term insurance requiring periodic health evaluation for lower premiums
How It Works:
- Lower initial premiums
- Must re-qualify every few years
- Pass medical exam to maintain low rate
- Or pay higher rate if can't re-qualify
Two-Tiered Pricing:
- Re-entry rate: Lower, if you re-qualify
- Non-re-entry rate: Higher, if you don't
Risk:
- Health deterioration increases costs
- May end up paying more than standard term
- Only beneficial if health remains good
Definition: Term insurance that returns all premiums if you outlive the term
Features:
- Significantly higher premiums (2-3x standard term)
- All premiums refunded if survive term
- Death benefit paid if die during term
- No cash value during term
Advantage:
- Get money back if don't die
- Feels less like "wasted" money
Disadvantage:
- Much more expensive
- Could invest premium difference elsewhere
- Return is not guaranteed by mortality
Best For:
- Buyers who want "something back"
- Disciplined savers
- Those who can afford higher cost
Choose Term When:
- Need is temporary (15-30 years)
- Budget is limited
- Want maximum death benefit for dollars spent
- Protecting against specific debt
- Income replacement during working years
- Young family with tight budget
Common Term Insurance Uses:
1. Mortgage Protection - Cover home loan
2. Income Replacement - Protect family's standard of living
3. Education Funding - Ensure children's college funds
4. Debt Protection - Cover consumer loans
5. Business Protection - Cover loans or partnerships
6. Estate Equalization - Provide inheritance to non-business heirs
30-year-old, $500,000 coverage:
- 20-year level term: ~$500/year
- Whole life: ~$4,500/year
- Universal life: ~$3,000/year
Why the difference?
- Term: Pure mortality cost only
- Permanent: Mortality + expenses + cash value
Advantages of Term:
- Lowest cost per $1,000 of coverage
- Simple and easy to understand
- Maximum protection for limited budget
- Flexible (can drop without loss)
Disadvantages of Term:
- No cash value
- Temporary coverage
- Becomes expensive at older ages
- May outlive coverage
- Eventually unaffordable or unavailable
Key Decision Factors:
1. How long is coverage needed?
2. What can be afforded in premiums?
3. Is cash value important?
4. Is coverage need temporary or permanent?
5. Are premiums expected to be affordable long-term?