Term life insurance policies can vary greatly depending on which options and features are selected. This allows the ability to customize a policy depending on the specific needs of the individual or family. Below are some of the more common options and features. Keep in mind that options and features may vary from company to company.
Some term insurance policies offer guaranteed renewability. This feature allows the policyholder to renew their term policy at expiration without proving insurability. Renewability is typically limited to the same term as the original policy (i.e. a 10 year policy can be renewed for another 10 years) and is typically limited to around age 65. Beyond the age limit, the ability to automatically renew no longer exists and the policyholder may have to prove insurability or meet certain other criteria. Though a policy is guaranteed renewable, remember that the premium will increase in order to reflect the increased expected costs.
The feature basically allows a policyholder to convert their term policy into some sort of permanent policy without proving insurability. This option can allow for much flexibility as circumstances change.
Level term policies fix both the face value of the policy as well as the premium payment over the life of the policy. Typically, as age increases, so do premiums. With level term policies these increases are anticipated and accounted for. Though the policyholder will pay more that the cost of coverage early in the policy, as time passes the insured will continue to pay the same premium even as the cost of coverage surpasses the premium payment.
A decreasing term policy is a type of level term policy. The face value of the policy decreases until it eventually expires at a predetermined date. This type of policy is typically used to meet temporary needs that require decreasing amounts of capital to satisfy. A mortgage is an example of a need that a type of decreasing term policy, a mortgage redemption policy, can be used for. The policy is written to cover the amount due on the mortgage. As payments are made and the mortgage balance decreases, the face value of the decreasing policy will decrease.
Family Income Policy
Family income policies combine decreasing term policies with a permanent insurance policy in that the term insurance will typically pay out as a percentage of the permanent policy coverage.