What Is Optional Term Life Insurance

Helen Skeates
Helen Skeates
18 min read

To clarify, what exactly is voluntary term life insurance? In any case, this is optional extra protection that policyholders can get from their employers. Term life insurance is an additional perk for employees beyond the standard benefits package.

The cost of standard life insurance policies is typically covered by an employer. However, the cost of the employee’s voluntary term life insurance policy will be borne entirely by the employee.There is no accumulation of money or other assets in a term life insurance policy. Cash value and loans against the policy are not available features of term life insurance. Optional term life insurance and term life policies in general are discussed further below.

Term life insurance is a type of coverage that lasts for a predetermined amount of time, usually between 10 and 30 years. If the policyholder passes away during the policy’s term, the beneficiary will receive the death benefit. When a policyholder passes away, the policy’s beneficiary receives the death benefit.

The most typical form of term life insurance provides a level death benefit for the duration of the policy’s term, known as the “level term policy.” It’s also possible for the benefit to decrease over time, usually by a set amount each year.

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After the initial term expires, you may be able to convert your term policy into a permanent life insurance policy, such as whole or universal life insurance, without undergoing a medical exam. The cost of converting to a permanent life policy is higher.

Some term policies may include a return of premium option, as stated by the National Association of Insurance Commissioners (NAIC). This means that you will receive a refund of all or a portion of your premium payments if a death benefit is not paid out before the end of the term. This alternative, however, comes at a higher cost.

Individuals can purchase term life insurance policies on their own, or they can join a group plan through their employer, a community organization, or a religious institution.

3 Advantages Of An Optional Term Life Insurance

So, what exactly is voluntary term life insurance? There are benefits to considering a term life insurance policy purchase. Some of the most common incentives for an employee to pay for this type of supplemental insurance are listed below.

#1. A medical exam is not needed

Some health questions are optional when applying for term life insurance. Similar to the enrollment period, a medical exam is optional.

#2. Convertibility

You can get supplemental coverage at a discount by enrolling in a group health insurance plan. In addition, if you quit your job but want to keep your group policy, you can. In addition, your term insurance can be changed over to a permanent life policy if you so choose.

The convertibility provision of a term life insurance policy lets you switch to a different policy type. A permanent life insurance policy can be obtained in this manner, eliminating the need for further medical testing. Most, if not all, insurance providers provide this convertibility option.

#3. Convenience

Buying term life insurance is easy because there is no need to compare policies. Just make sure you read the fine print of your policy. Carefully consider the insurance coverage as well.

A Quick Tip

However, it is recommended that you not let the ease of use be the deciding factor. Even so, it is wise to compare life insurance quotes in order to have options. If you apply for insurance on your own and disclose any relevant medical history, you may be eligible for a more affordable premium. All the more so for those who are young and healthy.

Employer-provided health insurance does not guarantee that all of your medical needs will be met. Consult with an independent agent so that you can plan for the coverage that fits your budget and your needs. They will also assist you in selecting the most appropriate product for your needs and budget.

How Does A Term Life Insurance Works?

The basic definition of term life insurance is an agreement between the policyholder and the insurance company. The policyholder must agree to make the required premium payments on time. In contrast, the insurance company promises the beneficiary a payout after the insured’s death.

The steps involved in purchasing a term life insurance policy are outlined below.

#1. Application Process

The perk isn’t just handed to you. First, during the underwriting process, the insurance company will determine how much of a risk it is to insure you. Usually, you’ll need to get checked out by a doctor. There will be additional questions concerning your personal preferences and professional life.

#2. Choosing the term length

You need to determine how long you will be covered. If you plan on having children, the lease term should last at least until they leave for college.

The monthly payments may increase with a longer term, but the peace of mind gained by not having to worry about the future makes the trade-off worthwhile.

#3. Deciding on the amount of death benefit

In the event of your death, the amount of coverage must be adequate to meet the ongoing financial obligations of your dependents. In most cases, the total cost of the necessary insurance will be less than you anticipated. Almost half of today’s millennials (44%) incorrectly estimated the cost of a life insurance policy.

#4. Naming beneficiaries

It’s a good idea to think about who will get the money when you die. One need not be the only one involved. You could, for instance, give half to your spouse and the other half to your kids.

Beneficiaries are typically members of your family, but this is not required. The policyholder can choose a beneficiary, who can be a friend or even a charity. They are qualified to receive the advantages.

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Term Life vs. Whole Life

  • Typically cost much less than traditional, permanent life insurance
  • Allows for a seamless transition to permanent coverage
  • Lifelong coverage is available.
  • It has the potential to offer assured cash value.
  • Insurance is short-term only.
  • Requalifying can be challenging due to age or health concerns.
  • Zero dollar value
  • Lower death benefit compared to term insurance
  • Costs more than term insurance policies typically do.

Whole life insurance, in contrast to term policies, is a permanent form of life insurance that continues paying out benefits until the insured dies. If you buy a whole life policy when you’re 25 years old, you won’t have to worry about being turned down for coverage or paying a higher rate. That’s true in general, but it’s especially so if you get sick.

However, if you opt for a term policy, your premiums will increase due to factors such as your age and any preexisting conditions. However, if your term policy allowed for a conversion to a whole life policy, you would be better off doing so. But the price tag will be higher.

You can borrow against the cash value that accumulates in your whole life insurance policy tax-free over time. It’s a safe way to save money because the cash value earnings are assured. A term policy won’t provide you with that.

Since death is less likely to occur during a set time period, term policies can provide coverage at a lower cost than permanent policies. Therefore, if you want the same level of protection as you could with a term policy, you will have to pay more, especially if you are comparing the cost to a shorter term policy.

Visit our whole life insurance guide for additional resources.

Term Life vs. Universal Life

  • Costs less than universal life insurance typically.
  • Policy costs are openly disclosed
  • Offers a wider range of coverage options than comparable alternatives.
  • Offers monetary value
  • Zero dollar value
  • No wiggle room on rates
  • There is no assurance of a death benefit.
  • Premiums may fluctuate based on interest rates.

Universal life insurance, like whole life, is considered permanent coverage. However, typical age limits for universal policies are 95 or 100. While that extra coverage may not be enough for some policyholders, it is longer lasting than term insurance.

Unlike term life insurance, universal policies allow you to accumulate cash value in the form of tax-deferred interest. Earnings on a tax-deferred interest policy are not subject to taxation until the money is withdrawn from the policy.

The flexibility to modify both premium and coverage is what sets universal life policies apart. If you lost your job and had to reduce your spending, you wouldn’t have to worry about having to cancel your policy. That’s not something you get with term life insurance.

However, you’ll pay more per month for that kind of adaptability, and a term policy’s shorter duration means you’ll get more coverage for your money. It’s also tricky to estimate how much you’ll spend on these policies because interest rates affect the premiums. It’s possible that the final cost will exceed your budget. A term life insurance policy would not work like that.

How Much Is Term Life Insurance?

The Texas Department of Insurance reports that the cost of term life insurance is based on several factors, including the policyholder’s age, health, and risk factors, the policy’s death benefit amount, and any riders the policyholder has chosen. However, if you have a group policy, the premium will be calculated based on averages rather than individual members.

Your quote will increase proportionally to the size of the death benefit you request. Life insurance premiums are also more expensive for men than for women.

Nevertheless, term life insurance premiums may be more affordable than you think. LIMRA, a research firm that specializes in the financial services industry, reports that roughly half of all Americans exaggerate the true cost of life insurance by a factor of three.

Check out our guide, Cheapest Life insurance Companies of 2022, to learn more about some of the more affordable life insurance options.

Female Term Life Insurance Cost

Male Term Life Insurance Cost

How Much Term Life Insurance Do I Need?

Term life insurance is a good option for those looking to maximize their policy’s death benefit without breaking the bank. But that doesn’t mean you need a higher level of protection. In the end, many factors will determine how much insurance you actually need. For instance, here are some things to think about:

  • When you’ll need insurance again
  • Current Obligations
  • Cash flow
  • Typical Income
  • Your level of risk-taking
  • Circumstances at home
  • Current medical conditions
  • General family objectives
  • Quantity of those helped
  • Influence a loss of income could have on a family

Brock Jolly, a certified financial planner (CFP) in Virginia, suggests two methods for making this choice: a needs analysis or a valuation of human life.

As part of a needs analysis, you would tally up your money needs from your starting point all the way through the year in which you expect your death to occur. The human life value approach, on the other hand, deducts taxes and consumption from the policyholder’s expected future economic contributions to his or her family. That way, they could provide for their loved ones even if they were no longer able to work.

A financial advisor can help you determine the appropriate level of protection for your needs.

For more information, read our life insurance policyholder’s guide.

What is Term Insurance Policy and Types of Term Insurance

Who Should Consider Term Life Insurance?

Not everyone should get term life insurance. However, it can be a helpful resource when used appropriately.

“Perhaps you’re concerned about who will pay your mortgage in the event of your untimely demise. Jolly speculates that one must consider both cash flow and death benefit. “Term insurance is the way to go if you can’t afford the premium on permanent life insurance.”

Term life insurance’s limited duration isn’t always a drawback. Term life insurance, for instance, could be used to cover a parent-cosigned loan while the borrower paid off the balance.

However, young people beginning their families may worry that they will not qualify for permanent life insurance or that the premiums will be too high. One possible solution is to switch to a whole or universal life insurance policy.

Also, middle-aged people who can afford a permanent life policy and who have dependents who would be financially burdened by their death may not benefit as much from term life insurance. When the term policy expires in 20 years, it may be more difficult to find reasonably priced permanent coverage.

How Do I Buy Term Life Insurance?

Getting term life insurance can be done in a few different ways, depending on the firm or broker you go through. In most cases, you would begin by looking for a suitable term insurance plan. After deciding on a specific policy, the next step is to make contact with the insurance provider or a broker.

Your name, address, marital status, gender, and age are required, as is information about any preexisting conditions you currently have, as well as your medical history. It’s possible that a medical checkup is needed, too. You can begin paying your premiums and signing your policy documents after approval.

You can learn more about getting life insurance by reading our buying guide.

What Riders Are Available with Term Life Insurance?

A rider is defined as an optional form of additional coverage by the California Department of Insurance. A few common add-ons to a life insurance policy are:

  • If the policyholder has been diagnosed with a terminal illness or is institutionalized, they may qualify for an acceleration of their death benefit.
  • If the policyholder dies in an accident, they will receive an additional benefit known as the “accidental death benefit.”
  • With guaranteed insurability, a policyholder can increase their life insurance coverage without submitting any new medical or health information.

How Long Does Term Life Insurance Last?

Term life insurance policies typically offer coverage for a period of five to thirty years. If you reach a certain age, typically around 65, the policy could expire as well. Your ability to renew your policy after it expires is conditional on your age.

When you apply to extend your term life insurance policy, for instance, the insurer may say no if you’re over the age of 80. It’s also possible to be turned down for coverage if the term you select would take effect after you turn 80.

What Is Supplemental Life Insurance?

In addition to the group life insurance your company provides, your company may also offer you the option to purchase a supplemental life insurance policy. It’s more expensive than the group policy, but it adds a safety net to your financial security.

Both accidental death and dismemberment insurance and burial insurance can help cover expenses in the event of an untimely demise.

Supplemental life insurance could be helpful if you need more coverage than is provided by the group plan or if the coverage provided is insufficient.

It’s A Wrap!

You should think about purchasing some additional protection now that you know what optional term life insurance is. Having this kind of insurance offers a number of benefits.

Helen Skeates

Helen Skeates

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