Term Life Insurance Features

Introduction

• Overview of term life insurance
• Focus on renewability and convertibility options

Renewability Option

• Definition: Ability to renew a term insurance policy for another term without new evidence of insurability
• Most modern term plans are renewable
• Example: 10-year term policy purchased at age 30, renewable at age 40
• Premiums:
  • Increase with age due to higher mortality risk
  • Guaranteed and specified in the contract from the start
• Re-Entry Term:
  • Allows provision of medical evidence at renewal
  • Can result in a lower premium if health status is favorable

Convertibility Option

• Definition: Convert term plan to a permanent insurance plan without new medical evidence
• Permanent plans have higher premiums due to:
  • Older age at conversion
  • Lifelong coverage
• Common Scenario:
  • Conversion often chosen by those with deteriorating health to maintain coverage
  • Useful for coverage beyond age 75 or 80
• Premium Calculation:
  • Based on "attained age" — age last birthday, age nearest birthday, or age next birthday
  • Some companies offer conversion at original age premium, though rare

Advantages of Term Insurance

• Low Initial Cost:
  • Pure risk protection
  • Guaranteed premiums
• Customizable Plans:
  • Based on specific needs (e.g., mortgage amount)

Disadvantages of Term Insurance

• Increasing Premiums:
  • Rise with age and policy renewal
• No Cash Value:
  • No returns upon policy termination
• Age Limitation:
  • Coverage restrictions past a certain age

Common Uses of Term Life Insurance

• Short-Term Risk Coverage:
  • Designed to cover risks ending before age 60 or 70
• Decreasing Risks:
  • Suitable for mortgages, loans, and alimony obligations
• Limited Cash Flow Situations:
  • Cost-effective for pure risk coverage
• Investment Preferences:
  • Ideal for those preferring to invest outside insurance plans

Conclusion: Term life insurance is versatile with its renewable and convertibility options, appealing due to its low initial cost and pure risk coverage, though it lacks cash value and has age limitations.