Term Life Insurance Articles
Why One Year Terms Are More Expensive Than Longer Term Insurance
2011-01-12
A term life policy can be a great way for anyone - young or old - to ensure that their spouse and family are taken care of in the event that they die prematurely. These term life policies can take several forms, from one year terms to longer term options that are 30 or 40 years long. Depending on the needs of a family and their financial means, they may wish to consider a longer term option as these are often the most cost-effective. While this may seem counter-intuitive, there are a number of reasons that one year terms will be more expensive than a term life policy that is purchased for a period of more than a decade.
When looking at the costs of term life insurance, clients will note that a one year term will have far higher monthly premiums than any longer term option but that over the length of the term a long term option user will pay more in total. This is by design, as long term options are intended to cover individuals at least up until their retirement and possibly beyond, depending on their needs. While the cost of a long term policy may cost in total far more than a single year of term life, it has the potential to act as a safety net no matter when the insured dies, easily paying off the amount that they insured has paid in. When it comes to a one year policy, once the insured is finished their term the policy itself will never pay out, meaning that any monies paid to the insurance company will be lost.
A one year term policy is based around the idea of probability that the insured will die during that year and the costs that need to be charged in order to offset a potential payout. Even if an insured falls quite low on the mortality table - the schedule used to determine the average age of death for Americans - a company will naturally increase the cost of their term life insurance over the course of the one year in order to ensure that if the insured does mysteriously die that they will be fully compensated for the loss. In addition, many companies will require that an insured undergo a waiting period before they can be paid out in order to minimize the effects of a sudden death on the company.
While one year terms may seem less costly overall, they will typically not be as effective or secure as longer term life policy options, and a consumer would do well to consider a long term policy to get the maximum benefit.
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A term life policy can be a great way for anyone - young or old - to ensure that their spouse and family are taken care of in the event that they die prematurely. These term life policies can take several forms, from one year terms to longer term options that are 30 or 40 years long. Depending on the needs of a family and their financial means, they may wish to consider a longer term option as these are often the most cost-effective. While this may seem counter-intuitive, there are a number of reasons that one year terms will be more expensive than a term life policy that is purchased for a period of more than a decade.
When looking at the costs of term life insurance, clients will note that a one year term will have far higher monthly premiums than any longer term option but that over the length of the term a long term option user will pay more in total. This is by design, as long term options are intended to cover individuals at least up until their retirement and possibly beyond, depending on their needs. While the cost of a long term policy may cost in total far more than a single year of term life, it has the potential to act as a safety net no matter when the insured dies, easily paying off the amount that they insured has paid in. When it comes to a one year policy, once the insured is finished their term the policy itself will never pay out, meaning that any monies paid to the insurance company will be lost.
A one year term policy is based around the idea of probability that the insured will die during that year and the costs that need to be charged in order to offset a potential payout. Even if an insured falls quite low on the mortality table - the schedule used to determine the average age of death for Americans - a company will naturally increase the cost of their term life insurance over the course of the one year in order to ensure that if the insured does mysteriously die that they will be fully compensated for the loss. In addition, many companies will require that an insured undergo a waiting period before they can be paid out in order to minimize the effects of a sudden death on the company.
While one year terms may seem less costly overall, they will typically not be as effective or secure as longer term life policy options, and a consumer would do well to consider a long term policy to get the maximum benefit.
