Term Life Insurance with Critical Illness
Term life insurance is a type of life insurance policy that provides coverage for a specific period of time, or “term.” It is typically the most affordable type of life insurance available. It can be an excellent option for those who want to ensure their loved ones are taken care of financially if they die unexpectedly.
But term life insurance doesn’t just provide protection in the event of death. It can also offer critical illness protection. This means that if you become seriously ill and are unable to work, your policy will help cover some of your expenses.
Let’s discuss term life insurance in more detail and how the critical illness aspect works to provide additional coverage.
What Is Term Life Insurance?
Term life insurance is a temporary insurance policy that provides coverage for a specific duration, like a ten or 20 year period. You choose a duration and also the amount of the death benefit. The death benefit is how much would be paid to your beneficiaries if you passed away while the policy was in effect.
A level term policy is the most common type of term policy. “Level term” means the money paid out in the event of your death stays constant throughout the duration of your policy. Decreasing term policies have a shrinking death benefit, meaning that the amount paid out gets less and less with each passing year.
Some term policies are “convertible,” which means that the owner can convert them to a permanent life policy at the end of the term. We’ll discuss these policies more a little later.
Another feature some policies may offer is a return of premium. If the death benefit isn’t paid out upon the termination date, the policyholder will be refunded all or part of the premiums that were paid. This feature requires an additional premium.
You can purchase a term policy as an individual or through a group life insurance plan available with some employers or other organizations.
How Does Term Life Insurance Work?
When you buy term life insurance in Texas, the premium is determined by the coverage value (the payout amount) and your health, age, and gender. A medical examination is required in most situations unless the coverage amount is below $250,000. Your driving history, current medications, smoking status, employment, hobbies, and family history might all be investigated by the insurer.
If you pass away during the policy’s term, the insurance will pay out the face amount of the policy to your beneficiaries. This cash benefit, which is usually not taxed, may be used by heirs to pay for healthcare and funeral expenses, consumer debt repayment, or mortgage debt settlement. If the insurance expires before your death, no money will be paid out. If the policy had a renewable option, you could renew the policy for another duration, but the premiums will be recalculated using your attained age.
A term life policy has no value other than the guaranteed death benefit. There is no savings element like those found in a permanent life insurance product.
Types of Term Life Insurance
Term life insurance comes in various forms, so the perfect option will be determined by your unique situation.
Level Term / Level Premium
A level term policy can range from ten to 30 years. The premium and the death benefit will never change during the duration of the policy. However, since insurance companies must consider the rising cost of insurance over the life of the policy, the premiums for a level term policy are often higher than those for annually renewable term policies.
Annually Renewable Term (ART)
Annual renewable term (ART) policies do not have a fixed duration but may be renewed each year without showing proof of insurability (meaning you won’t need to undergo medical underwriting). Premiums increase from year to year as the insured person ages. Sometimes, the increases can be significant, making these policies less desirable for many individuals.
A decreasing term policy has a death benefit that decreases over time. However, the insured still pays a level premium for the entire term. Typically, decreasing term policies are used when the policyowner has a mortgage and would like to provide protection for a spouse if they pass away while the mortgage is outstanding. As the amount due on the mortgage decreases, so does the death benefit.
Term Life Insurance Riders
A rider is an added benefit option that enhances your term life policy. Riders must be purchased for an additional premium. There are three term life riders that are common.
An accelerated death benefit allows policyholders to draw funds from their death benefit if they get diagnosed with a terminal illness that will result in death within two years. This also applies to those who get confined to a nursing home.
Accidental Death Benefit
An accidental death benefit will pay double or triple the face amount if the policyholder dies due to an accident. These are also called double or triple-indemnity plans.
This rider allows the policyholder to purchase additional insurance without showing proof of insurability.
What Is Term Life with Critical Illness?
Term life with critical illness insurance is a term policy that includes a rider for critical illness protection. The term life portion provides death benefit coverage, while the critical illness rider pays out in the event of specified medical emergencies. These illnesses can vary from company to company but typically include heart attack, stroke, cancer, and renal failure.
Funds received from critical illness protection can be used however the policyholder needs them. They can be used for treatment or for other expenses they incur as a result of their illness.
Now that you know how term life policies work let’s discuss an example of how it would work if you had critical illness protection.
Julie purchased a $50,000 term life insurance policy with critical illness protection. A couple of years into having the policy, Julie is diagnosed with renal failure. At that time, the critical illness rider would take effect, and Julie would receive $50,000 to use as she needed while in treatment for renal failure.
What Is Considered a Critical Illness?
You should check the terms of any policy you are considering, but most plans include the following illnesses in their protection benefits:
● Coronary artery bypass
● Heart attack
● Loss of hearing, speech, or vision
● Organ transplant
● Renal failure
Term Life Insurance versus Whole Life Insurance
We won’t go into too many details about whole life insurance here, but you should understand the fundamental differences between term life and whole life plans.
The most significant initial difference between term life insurance and whole (or permanent) life insurance is the duration of the plan. As we’ve discussed, term insurance is temporary. Whole life insurance, however, is permanent coverage. The other differences are the cost and the ability to accumulate a cash value.
Whole life policies require higher premiums, which is why many people choose to begin their coverage with a term life insurance plan. However, if the insured lives past the term policy, they have no benefits after paying all those premiums.
A whole life policy allows for cash accumulation, and owners can choose to invest and grow the funds. The type of investments and withdrawal options will depend on which type of whole life insurance policy you choose.
How Much Does Term Life with Critical Illness Insurance Cost?
Level-premium term life insurance in Austin, TX, is very affordable and an excellent option for those who want substantial coverage in case the unexpected occurs.
The cost for a policy will depend on personal factors, location, and the death benefit amount. To give you an idea of cost, a healthy 30-year-old can expect to pay $20-$30 per month for a 20-year level term policy with a face value of $250,00.
The insurance company’s financials and state regulations will also affect your premium. They offer rate breaks at certain intervals, often at $100,000, $250,00, $500,000, and $1,000,000.
Who Should Purchase Term Life with Critical Illness Protection?
Not everyone needs a term life insurance policy. However, they are beneficial in many circumstances.
Young individuals or couples who are starting a family are one of the biggest beneficiaries of term insurance. For a low monthly premium, they’ll have peace of mind knowing that they’ll be protected in worst-case scenarios.
Those with family histories of illness would also benefit by purchasing a term life policy with critical illness protection. While we can’t predict the future, we can look at the past to make educated guesses.
How Do I Choose a Term Life Policy?
The highest death benefit isn’t always the best option for everyone. The right policy for you will depend on a variety of personal factors. Some things you should consider include:
● Existing debt
● Minimum living expenses
● Cash flow
● How long you need coverage
● Existing health conditions
● Family circumstances
A financial professional can help you in determining how much insurance coverage is appropriate for your situation. Our licensed insurance agents at CoverMile are here to help you make these difficult decisions. We’ll educate you on each of your options and help you choose the policy that makes the most sense for you.
Call us today for a complimentary consultation.