Life Insurance

How Does Renewable Term Life Insurance Work?

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Many people put off getting life insurance simply because they don't understand the details. But there's no need to be intimidated—term life insurance is a straightforward type of policy, and it can offer you substantial financial protection. Here, we've compiled some of the most common questions to help demystify the process, so you can finally understand how term life insurance works.

Does your term life insurance premium increase as you age?

Aging underscores the importance of getting a term life insurance policy as soon as possible. Once you have a policy in place, your premium remains the same for the entire term length. But because term insurance premiums are based on your age at the time you purchase the coverage, policies cost more for people who buy them at an older age. If you've been dragging your feet on getting a policy, it's a great time to take action.

How much do term life insurance rates increase?

To help you gauge how much you can save by getting a policy earlier in life, let's look at average life insurance rates by age. Here's an example of the average monthly premium for a non-smoker who wants a $1 million policy for a 10-year term. (Note that these averages are from 2021 and are subject to change over time).

As you can see, once you hit your 40s, rates quickly jump and accelerate significantly after age 55.

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How does term life insurance work?

Term life insurance is relatively straightforward. You choose a coverage amount (the amount your beneficiary will receive if you pass away during the term) and a term length. When applying, you'll answer questions about your health, lifestyle, and finances to help craft a quote. Some life insurance companies require you to take a medical exam, but getting a quote through Ethos allows you to skip this step of the process. 

As long as you keep up with your premium payments, your policy stays active. Ethos policies automatically renew at the end of the term period (premium rates may change). If payments continue to be made, your beneficiary will receive the death benefit. 

How long is term life insurance?

You get to choose the length of the level term period in your term life insurance policy. Your options usually include terms lasting 10, 20, or 30 years. Since the risk of death increases with age, the longer the term period, the higher your term life insurance premiums. 

Do you get your money back at the end of a term life insurance policy?

No, you don't get your money back when your term ends. However, you do have a few options of what you can do next:

  • Let your policy expire
  • Apply for a new policy with entirely new terms
  • Automatically renew the policy by paying the renewal premiums.       

It's important to note that your premiums will likely increase because of your age in any instance where you're looking for a new or extended policy. But your coverage needs may also change as you get older. For example, your kids may no longer be financially dependent on you, and you may have a lower mortgage balance. So, you may be able to lower your costs with a different death benefit amount.

What are the benefits of term life insurance?

In many ways, term life insurance is a strategic financial planning tool. For one, payouts are entirely tax-free, so your beneficiary gets access to the funds quickly and without having to forgo a portion for taxes. Additionally, having a term life insurance policy lifts a significant financial burden from you in the event an unexpected death occurs. You can get enough coverage to pay for final expenses and cover any debt that could cause your family financial stress. 

Can you renew a term life insurance policy?

As your term life insurance policy comes to an end, your insurer may allow you to renew the policy without getting a medical exam. Ethos life insurance plans renew automatically at the end of the term period (premiums will increase since the insured person has aged). If the premium continues to be paid, coverage remains and the death benefit will be paid. 

What's a convertible life insurance policy?

A convertible life insurance policy allows you to switch your term life insurance to a permanent policy, meaning it'll stay in effect for the rest of your life, as long you pay your premiums. Depending on your insurer, you may be able to convert some, or all of your coverage amount. Plus, you usually get to skip the medical exam, making it easier to qualify for a policy when you're older. Remember that your premium will jump higher since you're older, but the application process is likely to be much easier.

Now that you understand how term life insurance works, get a quote so you can get covered today.

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