Agent Owner, Gilmore Insurance Services, Marysville, Washington State
In most cases it applies to the period of time where the premium is level (the same) in cost. Most term policies are designed to run longer than their level term period but at a higher price that increases every year after the level premium period ends. So with this question a 20 year term life policy would most likely be a flat level premium for 20 years, then an increasing premium there after if the insured wants to continue the policy.
If you have a 20-year level term policy and the premium is $400 per year for example, at the 21st year you COULD keep it but the premium would be around $3,000 per year. And if you keep it a year after that it would be $3,500 per year. It would keep going way up.
The idea behind level term insurance is to buy the length of time that you need to be insured. For most people that is when they reach retirement age and the kids are on their own. Then your insurance runs out and you don't need a big policy anymore.
The most common misconception about level term insurance is that many people think they will have a paid up policy in 20-years. That is completely wrong.
There is also a 20 (and 30) year term policy that has a couple more built in options at the end of the term period. With most 20 yr term plans your only options are pay the huge increase in premium, convert to a higher priced plan, or just walk away and try to qualify for a new plan, health permitting. Most term plans have zero cash values.
Another option is a term plan called Return Of Premium (ROP). With ROP you may have an option to get all your premiums back at the end of the level period. Example would be an annual premium of $700. would return $14,000.00 at the end of 20 years. Another important option with ROP Term would be a reduced paid up Life Insurance plan. Using the same example, instead of taking the $14,000 you take a $25,000.00 paid up policy, regardless of your health. The premium is higher for ROP, but would be much lower than regular term over the 20 year period.
What is the right plan for you? A good agent will show you the options.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Not all 20 year term policies mean the same thing. My company offered a 20 year non-renewable term policy which meant that the company would pay a death benefit to the beneficiary if the insured died during the precise 20 year period covered by the policy. The premium on that policy would remain level throughout the 20 year period. No benefits existed after the policy terminated.
Today they offer a 20 year term policy that provides the same death benefit as before and the premiums remain the same as before, however, the policy can be renewed after the 20th year and for many years after that. The policy will terminate at which time coverage cannot be renewed. The premium after the first 20 years is considerably more expensive than in the first twenty years.
My company also offers Cash Value Term which for a slightly higher initial premium develops cash value. It works much like the other 20 year term policies except that at the conclusion of the 20 year period there are a variety of options that allow the policy to remain in force for a lower premium or select a permanent, reduced death benefit.
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The idea behind level term insurance is to buy the length of time that you need to be insured. For most people that is when they reach retirement age and the kids are on their own. Then your insurance runs out and you don't need a big policy anymore.
The most common misconception about level term insurance is that many people think they will have a paid up policy in 20-years. That is completely wrong.
Another option is a term plan called Return Of Premium (ROP). With ROP you may have an option to get all your premiums back at the end of the level period. Example would be an annual premium of $700. would return $14,000.00 at the end of 20 years. Another important option with ROP Term would be a reduced paid up Life Insurance plan. Using the same example, instead of taking the $14,000 you take a $25,000.00 paid up policy, regardless of your health. The premium is higher for ROP, but would be much lower than regular term over the 20 year period.
What is the right plan for you? A good agent will show you the options.
Today they offer a 20 year term policy that provides the same death benefit as before and the premiums remain the same as before, however, the policy can be renewed after the 20th year and for many years after that. The policy will terminate at which time coverage cannot be renewed. The premium after the first 20 years is considerably more expensive than in the first twenty years.
My company also offers Cash Value Term which for a slightly higher initial premium develops cash value. It works much like the other 20 year term policies except that at the conclusion of the 20 year period there are a variety of options that allow the policy to remain in force for a lower premium or select a permanent, reduced death benefit.