20 Year Term Life Policy Explained
There are many reasons why people often shy away from insurance. A survey conducted by Risk Store (2010) found that 81% of the respondents said that insurance is expensive, with 41% who mentioned that it is too complicated. You might be surprised to know that most insurance premiums actually cost less than a cup of coffee. There are many types of life insurance policies you can choose from according to the lifestyle and needs you have without harming your budget. One of the most common types of insurance policies is term life insurance.
What is Term Life Insurance?
Term life insurance provides you coverage in the event of death or if you have been diagnosed with a terminal illness (with only 12 months to live) for a specified period of time, depending on the length of cover you have chosen. Your nominated beneficiaries, which are usually your financial dependents, such as spouse/partner, children, siblings, or aging parents, will receive a lump sum benefit payment that they can use to keep on top of their financial commitments.
Most people choose term life insurance for specific financial obligations, which will often include:
- Daily living expenses
- Mortgage repayment (or rent, if you don’t own your home)
- Payment for your children’s education
- Short-term or long-term debts
- Payment for funeral expenses
Why Choose Term Life Insurance?
One of the biggest attractions of term life cover is the cost of premiums that are cheaper compared to the other types of insurance policies. This type of life insurance policy is flexible, allowing you to choose the length of cover that suits your needs and situation. You can also tailor your life policy to include coverage for total and permanent disability and/or trauma, and other options that are available for additional costs to ensure a benefit is received if you suffer serious illness or injury.
Term life insurance is a type of cover that offers flexibility to be adjusted as your circumstances change. You can increase or decrease the amount of your cover at significant life events, which in turn will adjust the level of premiums you pay.
What Term Lengths are Available for Purchase?
The most popular life insurance terms that are available for purchase span from 5, 10, 15, 20 to 30 years. It is important to consider your needs and personal circumstances when deciding the term of coverage for you and your family. Some people may opt for longer or shorter periods depending on the life stages they are in.
What Does a 20 Year Term Life Policy Mean?
The “20” in 20 year term life insurance policy means that you will be covered for the first 20 years of the policy. Depending on the premium structure that you have chosen, you have the option to keep the premiums the same throughout the two decades with level premiums. You can also choose stepped premiums (more suitable for short-term policies) or blended premiums (a combination of stepped and level premiums, which are not available with all providers), depending on your needs and requirements.
As an example, if you are 35 years old, married with children, and have a mortgage, you may consider a 20 year term life policy, which will cover you and your family at the time when your financial commitments are the highest until you reach 55 years of age. Once you reach the end of your policy, your children may have moved out of home and you may have smaller amount of debts, as you may paid off your mortgage. At this point of time, you may no longer require the protection of a term life insurance, although you may like to consider a form of protection for your funeral expenses.
How Do You Know which Term Life Insurance You Should Choose?
Many people are surprised at how affordable life cover can be, but the question that is often asked is how long an appropriate term of cover is - is 5 years too short or 30 years too long? In order to answer that, there are certain factors that you may need to consider:
- Your age. Your life insurance needs will differ depending on the life stage you are currently in. If you are in your early 20s or 30s, you may like to consider a longer period, such as 20 year term life policy, to cater for future events and commitments (having a family or buying your first home. However, if you are in later stages of life, your needs for life cover may not be as substantial as those who are in their 20s and 30s and thus require less coverage for a shorter period of time.
- What is your current financial situation like? If you are just starting to build your career, you may not have a lot of disposable income and you may think that you cannot afford expensive life insurance premiums. However, when you purchase life cover when you are young and healthy, your premiums will be cheaper compared to buying it when you are older. Consider blended style premiums which incorporate stepped premiums for the first 10 years of your policy and level premiums for the remaining period of the policy.
- Do you have long-term debts? Meeting the repayments of your debts and other financial responsibilities are important, especially to your family. So, if you suddenly die or only have a few months to live, can you guarantee that your loved ones will be able to cope with all the debts and living expenses? Will the family’s savings be enough to cover for other expenses and payments?
- The age of your children and their education expenses. If you are a parent, your children’s well being is a priority. Therefore, it is essential to consider how your surviving partner/spouse can meet the costs of your children’s education if you are no longer around. When you have young children, 20 year term life policy is beneficial as it will protect your family at a time when they are most vulnerable if you were to die prematurely.
While it may be difficult to determine an appropriate term of cover, it is important to think long and hard into the future when you make your decision. Consider every aspect of your present and future financial obligations and how it will affect the people that you care about (those you consider as your financial dependants) in the event of your death, especially if you are between the age of 25 to 35. This is when 20 year term life insurance can provide the most benefit.
Why Should You Consider 20 Year Term Life Policy and Not 10 or 30 Year?
Why 20 years? How is it different than 5 years or 30 years? For many reasons, which can be found from the following:
- Provision for coverage during a critical period: Although 5 or 10 year policy is much cheaper compared to 20 year policy, the latter will provide you with more coverage, especially at a time when your financial commitments are highest. If you have children going to University within the 20-year period, you want to ensure that they will get the best education no matter what happens to you.
- Options to increase cover at significant life events: Any policies will feature Guaranteed Insurability Option, which will allow you to increase the level of cover when new obligations arise without having to undertake further medical testing. Life events often include (but not limited to):
- Getting married
- Birth or adoption of a child/children
- Taking out a mortgage
- Buying a house
- A dependant child starting secondary school
- Taking out a business loan
- Increasing an existing business loan
- Death of a spouse/partner
Rob: Why Choosing 20 Year Term Life Insurance was a Good Decision
Rob was 32 years old and owned a cafe business in Sydney. He took out term life insurance just two years ago when he secured a loan to start up his business. With the advice of an insurance adviser, he decided to opt for a 20 year term life insurance policy to cover his long-term debts (business loan and mortgage) and his young family, as he had just gotten married to Rachel, 30, who was pregnant with their first child.
With a very successful run of the cafe, he decided to expand his business a few years later. He applied for an increase in his existing business loan so that he could open up a new restaurant (bistro). At this point of time, Rob and Rachel had just welcomed the birth of their second child.
With 20 year term life policy, despite of Rob’s changing circumstances, he had the peace of mind of being able to increase the amount of his life coverage, especially when he had taken on more debts and with a family that was still growing. If anything should happen to him, the term life insurance would be enough to cover all the debts, provide for the family’s living expenses and the children’s education expenses until they finish University.
Do I Need to Take a Medical Exam to Purchase 20 Year Term Life Insurance?
Contrary to the popular belief, most life insurance applications in Australia may not require you to complete a medical exam. However, if a medical exam is required when you apply for 20 year term life policy, it could be due to a number of reasons:
- Disclosure of a pre-existing medical conditionThis is one of the major reasons why a medical exam may be required by the insurance provider. Pre-existing medical conditions are not always grounds for applications being refused and medical exams are requested so that the insurer can find out more information on the condition.
- Your age at the time of applicationIn general, the older you are, the higher the likelihood that you are required to take a medical exam. Most applicants are more likely to be prone to serious medical conditions later in life.
- When a high amount of insurance is needed while the amount that constitutes as “high” will differ between insurers, they will generally request for a medical due to the increased risks that they may have to take on with significant amounts of coverage.
When you are required to complete a medical, there should be very little to worry about if you have been completely honest in your application. Medical underwriting requirements vary between providers so if your application is rejected by one provider, it is always worth considering other options.
What Sort of Medical Exams Will I Have to Take?
When applying for 20 year term life insurance policy, you may be required to take the following:
- Blood test
- Urine test
- Blood pressure test
- Height and weight measurement
- A check-up by a doctor on a series of questions regarding your medical history
The requirements for a medical may vary depending on the level of risk perceived by the insurance provider. In some cases, a medical report from your doctor will be sufficient for the insurance company or some insurers may use the service of a qualified nurse to visit your home or office to take the tests.
Applicants with severe medical conditions may be required to undertake more comprehensive medical assessment. The life insurance company may nominate to use their own doctors, although you may be able to use your existing doctor depending on the insurer. Depending on the insurer’s reason to request a medical, the specific requirements and tests required may differ between cases.
Purchasing a 20 Year Term Life Insurance Plan: Steps to Success
To buy your life insurance with a 20 year term, follow these simple steps:
What Do You Do with Your 20 Year Term Life Insurance Policy if it is about to Expire?
If you are in your early 20s and you are considering to purchase term life policy, you may want to consider a 30 year term life insurance. It will cover you at the time your financial commitments are the highest and there may be no need for you to renew the policy upon reaching its end date.
If you consider that 20 year term life is a better (and cheaper) option for you and you found that you still have the need for life insurance, as long as you continue to pay the premiums, you can still continue your cover until you reach 99 years of age.
It is worth noting that any applicant considering renewing their policy is required to notify their insurer of any new known conditions that have surfaced since the time of application. Failure to disclose this information may lead to the policy being rejected in the event of a claim.
Having life insurance cover is important because it prepares you against the uncertainties in life. It will not stop the unexpected from happening but it will surely minimise the financials impacts it may have on your loved ones. 20 year term life insurance can provide your dependents with the financial protection that you may need to meet all the expenses that will still accumulate even if you are no longer around. Term life insurance can continue protecting the future of your loved ones that you have carefully built.