Are you shopping around for life insurance? You’ll find that there’s more than one type of insurance, and each has its pros and cons. In this article, we’ll help you to understand the different types of term life insurance and how they work. Use this information when thinking about what you want your life insurance to do for you. Consider the reasons why you want a death benefit to be paid to your family, what you need it to do, and what type of life insurance will match those needs. Let’s begin by looking at term life insurance in general before examining the different types of term life insurance.

What is Term Life Insurance and Who Does it Suit?

When thinking about life insurance, we usually think about a policy that pays out when we die - no matter when that is. This kind of life insurance is known as “whole life insurance” and it's expensive, because if one thing is certain, then it’s the fact that everybody dies sometime.

Term life insurance pays a death benefit if you die within a certain number of years. Because not all policyholders will die during this period, insurers can charge less for it. Most people who choose term life insurance do so because they’re concerned about their children and what will happen if their mortgages are still being paid. Once their children have grown up and the mortgage is settled, they’re confident that a surviving spouse will be able to cope financially.

So, to sum up, term life insurance pays out more for lower premiums but only does so for a fixed term. It’s usually chosen by people for whom the welfare of children who have not yet reached their majority is the primary concern. It serves to replace income, cover educational costs, and to help the surviving spouse settle a mortgage.

Types of Term Life Insurance

Now that we have a broad understanding of what term life insurance is, we encounter a new batch of terms hiding beneath the surface and a whole range of new questions to ask. What is level term life insurance? What is decreasing term life insurance? Having scratched the surface, it’s time to dig a little deeper.

What is Level Term Life Insurance?

A level term life insurance policy has a fixed premium and provides a fixed death benefit. In other words, you will pay a fixed premium during the term you’ve chosen to be insured and if you were to die at any time during that term, the death benefit would remain the same. This type of term life insurance is usually set for a period that lasts from ten to thirty years.

What is Decreasing Term Life Insurance?

In decreasing term life insurance, you pay a constant premium, but the death benefit gets lower over time. Before you decide that this sounds like an odd idea, revisit the reasons why people take out life insurance. If a policyholder’s main concern is making payment of a mortgage possible, that amount declines over time. As you’d expect, this type of insurance has a lower cost than a policy with a fixed death benefit.

What is Increasing Term Life insurance?

As you may have guessed by now, increasing term life insurance is the opposite of decreasing term life insurance. You pay a constant premium, but the death benefit increases over time to account for inflation. Most people who choose this type of insurance have income replacement as their primary concern. If they were to die, they want their families to remain comfortable without the income that they contribute to the household every month.

What is Family Income Benefit Insurance?

You may encounter family income benefit insurance in your search for a life insurance policy. It fits into the term life insurance category and means that your insurer pays a regular income to your family if you were to die or be diagnosed with a terminal illness.

What Type of Term Life Cover Should I Get?

There’s no single answer for people looking at types of term life insurance and trying to decide what’s best. Ask yourself what your family’s needs really are. Begin with: “How much term life insurance do I need right now?” and think about how you might expect that to change over time. Will your family need more money, or less? Right-sizing based on the death benefit they’d receive will help you to see what kind of term life insurance would work best for you. You can also use our life insurance cover calculator to help work out how much cover you need.

How Long Should the Term Be?

When actuaries decide how much your premiums should be, they will consider your current age and health. If, for example, you were to outlive a 10-year term life insurance, you may want to get new cover. But now, you are older, and premiums will be higher unless you choose a lower death benefit.

In general, it’s better to match the term of your insurance with the time you think your family will need the death benefit you’ve calculated based on their expected needs. This will help to keep your premiums lower over the term of your insurance. If you survive that term, and many people do, you can reinsure for a lower amount without jeopardising your family’s financial security.

What Happens to My Life Insurance When the Term Ends?

When answering the question of what term life insurance is and how it works, we also have to consider what happens when the term ends. It’s very simple. Along with other policyholders, you’ve been paying into a kitty that provides death benefits if members die during the insured term. If you don't pass away, the payment of your premiums ends, and your beneficiaries’ right to claim death benefits ends at the same time.

Meanwhile, you have realised some savings owing to lower premiums, but since there was no claim, the “kitty” keeps your money. However, apart from the personal advantage of having lived to tell the tale, your insurance was there for the purpose you initially identified should the worst have happened. Times have changed, and you might reinsure for a lower death benefit - if you decide to reinsure at all.

Term Insurance for People With Chronic Health Conditions

When you apply for life insurance, it’s important to be perfectly honest when providing information that’s used to calculate your premiums. Unfortunately, people with conditions like diabetes or heart disease will usually be at a disadvantage. Some insurance companies won’t provide cover, while others will put you through a lengthy application process littered with “requirements” before either turning you down, or offering you insurance with very high premiums to pay.

There’s good news for people living with Type 2 diabetes, however. A team of doctors and financial specialists has created a groundbreaking new form of term insurance that’s specifically designed for them. It has two aims: providing affordable and easy-to-get term life insurance for people with manageable health conditions, and helping them to live as long as they possibly can. Since it's unlikely that anyone would argue with the notion of using doctors’ advice to live longer, policyholders get more than just term life insurance in return for signing up. It’s a win-win situation that no other insurance company currently offers.

Interested? If you have diabetes, you’re going to love the personalisation and the ease with which you’re able to get the cover you need. Find out more about life insurance for type 2 diabetes with Blueberry Life. It adds a whole new dimension to the “peace of mind” that insurance is meant to provide.

Get the ball rolling right away. It’s as easy as filling out an online application- all you need is 5 minutes to tell us about yourself.

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This is a blog and should not be taken as financial advice.