If you are one of those people who believe in "Buy term, invest the rest!" This page is dedicated to you.
We will go through in detail all the different types of term insurance today.
1) Fixed term
You pay a fixed premium, that covers a fixed sum assured over a fixed period of time.
2) Renewable term
Same as fixed term, but gives you the option to renew without medical underwriting. Premiums will be much more expensive if you renew at a much older age.
3) Convertible term
Same as fixed term, but gives you the option to convert your term into a whole life plan or purchase a whole life plan without medical underwriting at a later age. This will be useful for those who want to do estate or legacy planning at a later age. Eg, you wish to leave the sum assured for your children.
4) Term life
The maximum coverage term is usually until 99 years old. Most people think of using this as legacy or estate planning. But with advancement of medical science and the rise of mortality ages, it is simply a gamble whether you will outlive 99 years old or not. If you do outlive 99, all the premiums paid would have gone down the drain, and the premiums to insure you until 99 is definitely higher than a normal term plan.
5) Age-banded term (usually comes as group term insurance)
You pay a certain premium when you are in a certain age group. The premiums are very cheap when young, but increase exponentially as you grow older. Expiry for such plans is usually at the age of 65-70.
Fixed-term vs Group term
One drawback about age-banded premiums is that the premiums cannot be locked-in unlike a fixed-term.
Which means that if an epidemic occurs, it can cause group term premiums to increase. For example, imagine a new virus that causes people to die at an earlier age. Premiums will definitely shoot up.
Another point to note: Although the premiums for age-banded term starts cheaper, if you add up all the premiums paid until 65, the total premiums paid might end up being more expensive than fixed-term insurance.
The good thing about age-banded term insurance is that it is useful for those who are not sure how long they should insure for. If you are very sure about how long you need to insure, fixed-term might be a cheaper option over the long term.
