Match the term to the life of the need

What the lesson covers

1. 01

   The client

   Marco is thirty-eight. His mortgage and his children’s dependence will last about twenty more years. He gets two quotes: a ten-year term at forty dollars a month, and a twenty-year term at sixty. The ten-year premium is lower, so he leans toward it. But the ten-year policy ends halfway through his need.

2. 02

   At year 10

   At the end of a term, the owner generally has three choices: renew at the scheduled rate, convert to permanent coverage, or let the policy end. The renewal rate is set for his age at renewal, so it is usually much higher than the first premium. And if his health has changed by then, a brand-new policy may cost more, or not be available at all. Conversion lets him move to permanent coverage without new evidence of insurability, but only until the deadline in his contract.

3. 03

   Total cost

   Now compare the two over the whole twenty years. If the renewal costs a hundred and fifty dollars a month, the ten-year route totals twenty-two thousand eight hundred. The twenty-year term totals fourteen thousand four hundred, and its price never changes. If the need really does end at ten years, the shorter term can fit. The point is to match the term to the need.

4. 04

   Exam move

   Here is how the exam asks it. Cheaper throughout? No. The renewal premium usually makes the shorter term cost more overall. New evidence after ten years? No. A twenty-year level term needs none during its term. An identical total cost? No, the totals differ. It costs less at first, but renews at a much higher rate midway through. That is the answer.

5. 05

   Takeaway

   Before you compare premiums, write down three things: how long the need lasts, what happens at renewal, and the conversion deadline. A premium only means something alongside the period it covers.