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Term Insurance Rates

Different Types Of Term Life

What makes term insurance rates so much lower than whole life, universal life, variable universal life or variable life insurance rates. Term insurance is the closest thing to pure insurance as you can get.

In some cases it is not so pure though. Let us examine how pure term life insurance rates are. Let us look at a few of the term plans and you decide how pure the rates are. We will examine the policies themselves and see how they work.

Let us start with the cheapest term plan, yearly renewable term life insurance.

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  • The Yearly Renewable Term Plan

    This is in effect a one year term with the option to renew each subsequent year at a higher cost. Why a higher cost. The older you are the more life insurance costs simply because the older you get the more likely you are to die.

    Your reflexes begin to slow down as you get older. You body begins to deteriorate. If you exercise and eat right you can slow down aging a little but not in entirety. The rate you pay as you get older is a fair rate and the closest thing to a pure life insurance rate that exists.
  • Level Term Plans

    The 5 year term policy is a good plan with very low rates. The premiums are level throughout and so is the face amount, this plan is front end loaded though. What the life insurance actuaries do is to calculate premium costs for each year over the 5 year period and charge you an average each year.

    You have therefore paid too much for that year if you died in the first year. If you died in the fifth year you paid much too little for your insurance policy in that year. So you see that these premiums cannot be considered pure insurance premiums at all.

    The premiums for all level term policies are calculated this way. The longer the term insurance plan the higher the premium because the average premium cost will be higher as the insured gets older. The annual premium for a 15 year term policy will be higher than that of a 10 year term policy. A 30 year term plan will cost more than a 20 year term plan.

    These term insurance rates are all fair rates as the life insurance companies guarantee that your premiums will never increase during the term period and the face amounts of the policies will never decrease.

    Permanent life insurance rates are calculated in a similar manner. As they are for longer periods the average cost is much higher. With these plans the life insurance companies try to compensate with cash values and dividends. Cash Values are guaranteed but dividends are not.

I hope this helps you understand better how term insurance premiums are arrived at.

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