Why One Term Life Insurance Rate Differs From Another

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The term life insurance rate is usually the most affordable rate for the consumer. Term life insurance is considered temporary insurance in the life insurance industry as the policy lasts for a specific period of years after which time it expires or is renewed by the owner of the policy. On renewal the term life insurance rate usually increases. More often than not you don't need to qualify for renewal...no medical.

Why The Term Life Insurance Rate Is Lower Than That Of Whole Life

What the life insurance companies are attempting to do when creating an affordable term life insurance rate is to minimize or eliminate any loads, front end or otherwise, that are normally built into a policy premium. If you examine the whole life policy mechanics you will notice that there are heavy premium loads built into the front end of the policy. The extra premium, whether they admit it or not, is what makes it possible to provide cash values to its owners. The premium loads in term life insurance policies are much lower thus we have a lower cost to the consumer and of course no cash values.

Policies With The Lowest Premium Loads

Outstanding policies with a low term life insurance rate is the decreasing term life insurance policy, the increasing premium life insurance policy (otherwise known as the yearly renewable term life insurance policy) and to a lesser extent the 5 year term policy.

• With the decreasing term life insurance policy the face amount of the policy is always on a decline and the premium remains level. The factors that the actuaries had to consider when calculating the premiums are first the fact that the owner of the policy is getting older each year, resulting in more of a likelihood that s/he will die sooner, and secondly that the amount of life insurance coverage is decreasing each year thereby decreasing the amount of risk. The two considerations kind of offset each other leaving them the opportunity to create a very low rate.

• The increasing premium term life insurance policy is more straightforward. You own a one year term policy from the word go. At the end of each year you elect to continue the policy but you are one year older. You therefore have to pay the premium for a one year term policy for the older age. Each subsequent year the same thing happens. This is term insurance in it's purest form. There only one other consideration...

  Because the insurance company guarantees renewal and because the older you are the more likely you are to die there is a small load built in to offset that risk. Look at it this way; if you had to do a medical examination each time you renewed the policy there would be no load.

• The premium rate charged for the 5 year term life insurance policy remains level for 5 years. In order to do this it has to be loaded up front as the death benefit also remains level. To put is more clearly you are paying more than needed to cover costs in the first year and you are paying less than would be needed in the fifth year. The term life insurance rate is an average of the mortality costs and administrative costs over the 5 year period.

The term life insurance rate charged to the consumer is usually a fair rate. The life insurance companies really do their best.