Not much is certain about what the future will hold in thirty years — and the same goes for the cost of the everyday items you use. After all, thirty years ago, a gallon of gas rang in at less than a dollar. But while it may be unrealistic to forecast your budget thirty years from now, one thing can stay the same: That’s your monthly life insurance premium.
Depending on the type of policy you get, it’s possible to pay the exact same amount per month for the 10, 15, 20 or 30-year term length that you choose. This type of policy has what’s called “guaranteed level premiums” and knowing what they are, how to find them, and when they work to their advantage can help you choose the best life insurance product for your needs. And perhaps more importantly, help keep your coverage affordable.
What is a guaranteed level premium?
A guaranteed level premium means that, as long as you continue to pay your premium each month, your rate is locked in for as long as the term length you choose. For many term life insurance policies, that’s 10, 15, 20 or 30 years. When the term ends, your coverage ends, or you can choose to renew coverage at a higher rate. Many people prefer guaranteed level premiums because, let’s face it, most of us don’t like for our bills to increase over time.
For many young and healthy people, a term policy with a guaranteed level premium can lock in affordable rates for the duration of your coverage. For example, a healthy 35-year-old woman can buy a 30-year, $500,000 policy starting at about $32 per month. Over the next 30 years, assuming she pays the premiums on time, she’ll have that peace of mind for $32 per month until the end of her coverage term. A term policy with a guaranteed level premium can give people high-quality coverage at an affordable price.
When shopping for a policy, you’ll want to identify whether or not your policy premium increases as you age. If your preference is for the premium to remain the same, which is the sentiment for many people, you’ll want to check that you are purchasing a level term life insurance policy.
How is a guaranteed level premium determined?
Your premium rate is determined by factors including your age, health, and lifestyle behaviors, like smoking. At Haven Life, to determine your rate, you’ll fill out an online application, which may be followed by a medical exam. In the life insurance application, you’ll be asked questions about not only your health history but also your family’s.
If you’re young and healthy, a medically underwritten term policy can lock in a low, affordable rate for your coverage duration, whether that be 10, 15, 20 or 30 years, no matter what may happen in the future.
Quotes for level premium term life insurance
We at Haven Life find that the average term length and premium our customers choose is 20-years and $600,000. Here are some sample term life insurance quotes for the Haven Term policy at different ages, genders, and health at that coverage amount and term:
- A 30-year-old man in excellent health: $23.03 per month
- A 33-year-old woman in good health: $27.79 per month
- A 37-year-old man in good health: $36.71 per month
- A 40-year-old woman in excellent health: $29.64 per month
Level premiums versus annually renewable term life insurance
As you’re researching term life insurance policy options, you may come across the term “annually renewable premium.” What does “annually renewable premium” mean? This type of premium is renewable each year, and the premiums will go up over time as the policyholder ages. In other words, the premium isn’t locked in, and over time may cost more than a level premium term life insurance policy.
So why would someone choose a policy with an annually renewable premium? There are some cases where this can be a good option.
In the first year or two of the policy, the premium may be less than a guaranteed level premium policy. But for an annually renewable premium term policy, the premium will increase each year. Over time it’s possible to pay more in premiums than what would have been paid for a level premium term policy.
An annually renewable policy may be an option for someone who needs coverage only temporarily. For example, if you have a debt you’ll pay off in a year or two – since, remember, its pricing can be less than a guaranteed level policy for the first couple years.
For most term life insurance buyers, however, coverage is needed for more extended periods of time — until the kids are adults or the mortgage is paid off. For those seeking coverage for extended term lengths, an annually renewable policy may not be cost-effective. That’s why many buyers prefer guaranteed level premium policies.
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How to get the most affordable policy for you
Buying a life insurance policy is a selfless financial move that helps financially protect your loved ones from the unexpected. It’s important to select a policy that provides your loved ones with the right amount of coverage and at a rate that will not be harmful to your budget. Fortunately, with term life insurance, that’s usually very easy to do. Here’s how to pick the right policy for you:
How much coverage do you need?
The right amount of coverage varies from person to person and depends on your age, your income, your debts (including a mortgage or car payment) and your family’s plans for the future. If you were to die, how would a mortgage be covered, how would your children’s college tuition be paid for, and how would your family be able to have a similar standard of living if your salary were no longer there? An online life insurance calculator can help you determine the optimal coverage for your family.
How long should your term length be?
Term insurance policies with guaranteed premiums are usually available in 10, 15, 20 or 30-year term lengths. For that set amount of time, as long as you pay your premium, your term life insurance rate is locked in, and your beneficiaries are covered.
So should you choose a thirty-year term length? Not necessarily. In general, a shorter term policy may have a lower rate than a longer policy, so it’s smart to choose a term based on the projected length of your financial responsibilities. For example, if you have a 30 year fixed mortgage, buying a thirty-year term length policy may make the most sense, to make sure your mortgage payments would be covered if you were to die. For others — those who may be close to retirement, have teenage kids, or have significant financial assets — a 10-year-term length may make the most sense. Again, an online insurance calculator can help you determine the optimal term length for your situation and help you estimate your life insurance policy rate. Choosing the right term length — not too short and not too long — can also make your policy more affordable.
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Consider the rating of the issuer of the policy
Not all life insurance products are alike, and it’s important to understand the reputation of the life insurance company you use. After all, life insurance is a long-term relationship, and it’s important to feel confident in the financial strength of the company you choose.
That’s where life insurance ratings come into the picture. Life insurance companies receive ratings from independent agencies based on its assessment of the insurer’s financial strength and claims-paying ability. Four of the rating agencies most frequently referred to are A.M. Best, Fitch, Moody’s and Standard & Poor’s.
A higher rating for an insurance company can serve as an indicator of its claims-paying ability, which is ultimately an indication of if it’ll be around to pay out a policy if it’s needed. Based on their analyses of customer complaints, available cash flow, and acceptable risk, the agencies provide an independent, objective opinion. The rating scales work like grades in school, so an ‘A’ is better than a ‘C.’
For example, Massachusetts Mutual Life Insurance Company (MassMutual), which issues the Haven Term policy, is A++ rated by A.M. Best.* (Superior; Top category of 15), A.M. Best’s highest rating.
You don’t know what the future holds. In 30 years, your gallon of milk may be $10. Your Netflix may be $100 a month. And who wants to guess the cost of a gallon of gas (to fuel your spaceship, of course!) But knowing that you’ll pay the exact same cost per month for your life insurance premium is one thing you can count on.
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Anna Davies is an editor at Haven Life. She has written for The New York Times, New York Magazine, Refinery29, Glamour, Elle, and others, and has published 13 young adult novels. She lives in Jersey City, NJ, with her family and loves traveling, running, and trying to find the best cold brew coffee in town.
Financial strength ratings are as of August 15, 2018: A.M. Best: A++ (Superior; top category of 15); Fitch: AA+ (Very Strong; second category of 21); Moody’s: Aa2 (Excellent; third category of 21); Standard & Poor’s: (Very Strong, second category of 21). Ratings are for MassMutual (Springfield, MA 01111) and its subsidiaries, C.M. Life Insurance Co. and MML Bay State Life Insurance Co. (Enfield, CT 06082). Ratings are subject to change.