What forms of term life insurance are there?
In order to take these different plans into account in the best possible way, you can fall back on different variants of term life insurance:
Classic term life insurance.
In this case, the life of the insured person is insured for a specific term and a death benefit is agreed. As a beneficiary, you can either specify beneficiaries or the legal succession. In that case, the amount would be divided among the legal heirs in the event of an emergency.
Insurance on two linked lives
This variant is intended for couples who insure themselves at the same time, such as in a marriage or cohabitation, but also in a business relationship. The death benefit is then only available once, namely when the first of the partners dies. However, there are also exceptions that provide for payouts for both insured persons.
Residual debt insurance
Term life insurance can be adapted to your credit obligations: The sum insured then falls in line with the repayment of the loan amount, so that in the event of death only the outstanding obligations are ever repaid. The premiums are considerably lower compared to the classic variant. As a rule, the benefits are assigned directly to the bank.
How high should the sum insured of a term life insurance policy be?
While the amount of credit liabilities is decisive for residual debt insurance, the question is difficult to answer for coverage of surviving dependents. While some people assume three to five times a gross annual salary, others recommend higher sums. Last but not least, the issue of inheritance tax should not be forgotten if you do not specifically take advantage of the structuring options.
- What are the monthly living expenses, including housing?
- How long will it take the children to stand on their own two feet economically?
- What costs should be budgeted for their upkeep and education?
- Are there other financial obligations to consider?
- Would survivors have to deal with current loans?
- What amount should be budgeted for funeral expenses?
Another aspect is the term of the contract, i.e., the period during which the insurance coverage applies and for which you have to pay insurance premiums. The fact is: the longer you let the contract run, the higher the premiums will be - because the risk of a claim increases for the insurer with increasing age. However, the insurance coverage also expires with the contract - so it is important to find a good compromise.
You can choose between a few years and very long terms. If term life insurance is recommended for young families in particular, at least until the children have gone their own way and the loans have been repaid, residual debt insurance is based on the term of the loan. Mutual term life insurance of business partners should also be agreed for the period in which the important business loans still have to be serviced.
How are term life insurance premiums calculated?
Compared to traditional and unit-linked life insurance, premiums for term life insurance are relatively low - even for high sums insured. The premiums are still moderate even for cover in the six-figure dollar range, although the specific amount depends on various risk factors. These include first and foremost
- Your age at entry
- Your state of health
- Your lifestyle
- Your profession
- Your hobbies
- the term
- the amount of the sum insured
If the insurer determines from your information that the risk is too high for him, he can demand a detailed risk assessment, accept the contract under more difficult conditions or even reject it. Gender, on the other hand, may no longer play a role, as the American Court of Justice ruled back in 2012. Until then, premiums for term life insurance were often lower for women because, statistically speaking, they have a longer life expectancy than men.
Is there term life insurance without health questions?
Health questions when taking out term life insuranceUntil 2010 this was quite possible, but since then health questions have generally been asked. This is the only way the insurer can assess the probability of premature death and take appropriate action. Ultimately, the aim is to maintain the low premium level for the insured community. However, health questions sometimes differ considerably - even small differences in wording can have drastic consequences:
If, for example, specific illnesses are queried, this is an advantage. After all, you don’t run the risk of forgetting what you consider to be some terse ailment, as you would with open-ended questions, such as “Have you consulted a doctor within the last ten years?” Failure to answer could result in denial of benefits in the event of an emergency.
While some insurers base health questions on the last ten years, others shorten the period, for example to five years. The advantage is obvious: the shorter the period of time, the more reliable the information you can provide.
An alternative is offered by specialized residual life insurance policies, which usually focus only on a few questions about serious illnesses. However, this approach is naturally reflected in the premium calculation, which is significantly higher than would be possible with regular health questions. In this way, the credit institutions ensure that they receive the important coverage for the financing granted in any case. In any case, an individual term life insurance policy is more favorable.