Types of Term Life Insurance

We buy insurance to help us offset risk. Health insurance helps protect our bodies, auto insurance keeps our cars protected and homeowners insurance is for our houses. 

But life insurance is unique: It’s not intended to protect your possessions. Instead, life insurance protects the people closest to you. When you die, they receive a sum of money that can help pay for expenses and help them maintain a standard of living. Often this can be a great comfort in a time of stress.

However, if you’re not familiar with them, life insurance policies can seem complicated. There are many types, some with additional add-ons to choose from. If you’re in the market for a life insurance policy, you’ll likely end up choosing between two different kinds of coverage: permanent (or “whole”) life insurance and level term (or just “term”) life insurance. 

Level term life insurance coverage offers you protection for a certain period of time, after which you’re no longer covered and need to buy a new policy. But term life insurance is more affordable than a permanent policy, making it easier to provide protection for your family. If you’re considering purchasing term life insurance, check out this guide to the different types of policies so that you can decide which one is best for you and your family.

If you’re still making the term vs. whole life insurance decision, have other questions as you select a policy or are ready to move forward with life insurance, reach out to Farm Bureau.

Type #1: Level Term Life Insurance

With level term life insurance — sometimes simply called term life insurance — your policy will expire after a predetermined number of years (which is the “term”). This policy is not permanent, but the death benefit and the premium rate stay the same for the entire term of the policy. Your premium payments will not go up or down, and your coverage will stay the same.

Unlike a whole life insurance policy, level term policies do not have any cash value. (That’s in contrast to the cash value of a permanent, or whole, life insurance policy, which allows you to take withdrawals or loans.) 

Why would someone purchase this kind of policy, if it doesn’t have a cash value and it expires? Term life insurance can be appealing because the benefits and costs are predictable and generally affordable. With this type of policy, you will know exactly how much coverage you have, how long your policy is in place and how much it costs. And that cost is generally less than permanent life insurance. That’s why this is the most common type of term policy sold.

Type #2: Supplemental Term Life Insurance

As its name suggests, supplemental term life insurance is designed to be an additional form of life insurance. It’s not meant to take the place of a good term life insurance policy or a whole policy but instead is meant to give your family additional coverage should something happen to you. There are two ways to obtain supplemental term life insurance: through your employer or privately.

Employer-Provided Supplemental Life Insurance

Some employers offer both term life insurance and supplemental life insurance. The limits through your employer can vary quite a bit from employer to employer. There are often some limits to these types of policies, so you’ll want to research those limitations.

For example, employer-provided supplemental life insurance policies may be specifically for accidental death and dismemberment (AD&D), meaning they’ll only cover you for a death caused by an accident. Other plans are strictly for burial insurance, meaning they’ll offer a very limited amount of coverage (between $5,000 and $10,000) to cover burial and funeral services.

Private Supplemental Life Insurance

This type of term life policy allows you to buy a supplemental plan off the private market, making it very similar to buying a level term life insurance policy. However, supplemental policies often have more limitations than a level term policy.

For instance, this kind of policy may have a graded or modified death benefit. That means that in order for the full amount to be paid, you must live a certain number of years after purchase. You can purchase these supplemental policies for burial insurance or AD&D insurance.

The key advantage of a private supplemental life insurance policy is that it’s portable (meaning you can take it with you if you change employers), and you can keep the coverage for as long as you are paying premiums; it does not have term limits. This type of coverage can also be cheaper but provide you with some additional coverage.

Type #3: Group Term Life Insurance

Like a supplemental term life insurance policy, group term life insurance is a benefit often offered by employers for their employees. Often, a group term life insurance policy will offer greater coverage and more options than a supplemental plan through your employer. Some employers provide this type of term life insurance coverage at no cost. It’s unlikely that a group term life insurance policy will meet all your needs, but it’s an important part of your overall financial situation. 

The amount of coverage offered through a group plan varies widely among employers, and it may also differ depending on where an employee falls within their organizational hierarchy. Employees are typically automatically enrolled at the base coverage level once they’ve met eligibility requirements. 

Additionally, some plans offer the option to purchase additional or even permanent coverage with simplified underwriting. Employees may be able to buy a limited amount of group coverage for a spouse or children.

Type #4: Convertible Term Life Insurance

A convertible term life insurance policy can be converted by the owner into a permanent, or whole, life insurance policy during a specific period of time, without requiring a new medical exam. These policies are a great way to enjoy the lower premiums of a term policy now, while having the peace of mind knowing you can easily convert the policy to a permanent policy at a later date.

There are many reasons to convert your term policy to a whole policy, including the ability to maintain your health rating from your term policy. When you convert your term policy to a whole policy, you’ll have coverage for the rest of your life, even if you become uninsurable later in life.

Get the Right Fit

With many options available, it’s important to determine the right fit for you and your family. Reach out to Farm Bureau today to get help taking the guesswork out of choosing life insurance and customizing a policy that works for you.