5-Year Term Life Insurance

*5 Year Term Life Insurance costs the same as a 10 Year Term. Personally, we don’t offer 5 Year Term Life plans for this exact reason. You can buy a 10 Year Term Plan so you can have the coverage locked in for a longer time and cancel whenever you want. 

You decided to buy a term life insurance policy or already bought one for a 5 Year Term and now you’re wondering if this is a great choice. Well, in a rare case we can easily say “No” because you can do better. In this article, we will be talking about 5-year term life but also term life in general. If you are planning on buying coverage for 5-years, then keep reading this applies directly to you, and if you are planning to buy life insurance, in general, this can be beneficial for you too. When buying life insurance it is very important to shop around before making any decisions, and in order to shop around you should know the basics.

1. Term life is designed to provide short term life insurance protection.
2. If you find a company that offers a 5-year term life policy and you look into their 10-year term life policy, you will see that both terms are offered at the same price.(5 Year Term doesn’t make sense)
3. Whether you choose a 5-year term or 10-year term they both have the same three options once it expires; Let it Expire, Renew it Annually, or Convert it.

What is Term life insurance?

Term Life is a life insurance plan that is focused on pure protection with no bells and whistles. A term plan will cover you for a certain duration like 1 year to 30 years depending on your coverage needs. Because of this the term plan is extremely low priced in comparison to other plans.

5-Year Term life vs 10-Year Term life

As you know now, term life coverage is only for a specified period of time. You’ll notice when shopping for term life insurance that they usually are available between 10 to 30 years. However, there are companies who offer 5-year term life policies, but how does that work? A 5-Year Term will have a fixed rated for the duration of five years and if anything happens to you during this time the company will pay out a death benefit to your loved ones. After 5 years the plan will increase the rate every year.

A 10-year term life insurance policy is the same thing except instead of your coverage being locked in for only five years it will be locked in for ten years. If you find a company that offers a 5-year term life policy and you look into their 10-year term life policy, you will see that both terms are offered at the same price. Our recommendation is to always go for a 10-year term life insurance policy versus the 5-year term life insurance policy because for one, they are the same price and for two, you can cancel the policy at any time so what’s the point of having 5-year term life insurance? There is no point, don’t let the big box life insurance companies trick you into thinking a 5-year term policy is better than a 10-year term life policy because it isn’t.

What happens after 5 or 10 years?

Whether it is a 5-year term or 10-year term they both have the same three options once they get to the term end. A lot of individuals believe that if they pay the term policy for the set duration of time at the end the policy is paid up and they will still be covered. This is not true and term life insurance is just like your auto insurance policy, you have it when you pay it. Here are some things that can happen when your term ends;

1. Let it Terminate- If your need for life insurance has diminished then you have the option of either canceling your policy or just letting it expire. If you let your term expire and later down the line you decide that you want to receive life insurance coverage again then you will have to repeat the whole application process, which means that you will need to be in good health. The downside of letting it lapse and wanting life insurance coverage again down the line is that if your health does not improve it is deteriorating and that means you may not have the best quote as you do now.
2. Renew it Annually- Most good term life insurance policies come with an option of having your policy renewed yearly without having to re-apply and prove good health, which can be a very good thing. However, with every good thing, there is a bad, and the downside with this option is that renewing your policy annually will cause your rates to increase astronomically over time.
3. Convert it- This is probably the best option of all three, and that is the option to convert your term policy into a permanent life insurance policy. This option is available with any good term life insurance policy and the conversion can take place at either the end of your term or before age 65, usually.

Pros and Cons of Term life insurance

Pros

• Term life happens to be the most competitively priced plan.
• Most people get thrown off by the fact that permanent life insurance provides cash value accumulation and that seems complicated so most people choose term life insurance for the simple fact that it’s the simplest form of life insurance and most just want their death benefit, not cash value.
• Term life insurance policies come with an option to convert the policy into a permanent one at the time of expiration or old age. This is great because you won’t have to undergo any medical questions or exam so if your health deteriorates, it simply doesn’t matter if you choose to convert.

Cons

• Term life insurance policies may be convertible but it doesn’t change the fact that term life insurance does carry and expiration date, and either you will no longer have coverage, or your premium will shoot up.
• Term life policies do not carry a cash value accumulation which some people admire because they can use this cash value accumulation for any future financial needs or simply to pay their premiums down the line.

Understanding the Different Types of Insurance

Term Life

• Term length: 5 (rarely), 10, 20 or 30 years.
• No flexibility whatsoever.
• No investment portion.
• Low-cost premiums with a high amount of coverage.
• After the term is complete and no death benefit has been paid, rates will increase when buying a new policy.

Whole Life

• Term length: Until death
• No flexibility whatsoever.
• Premium is partially invested in set assets and will build cash value.
• Low maintenance, safe and conservative.
• High premiums

Universal Life

• Term length: Until death.
• Flexibility available, premiums and coverage level are adjustable.
• Premium is partially invested in asset classes that can be adjusted and will build cash value based on market movement.
• Lowest price for a permanent policy with guaranteed death benefit.
• Cash value is not guaranteed.

Variable Universal Life

• Term length: Until death.
• Flexibility available, premiums and coverage level are adjustable.
• Premiums are partially invested and can be managed while cash value is being built based on the movement of the market.
• A Potential for greater gains.
• Cash value is not guaranteed.

Who should buy a 5 Term life insurance?

The only time we recommend a policy you get a 5 Year Term Life policy is if you’re 5 years away from retirement or need it for a business loan. Even in those cases you should just go with a 10 year term plan since it costs the same.

Understanding the Different Types of Term Life Insurance

Annual Renewable Term– This type of term life insurance allows you to have coverage for one year with the option of renewing it each year for a specified duration. However, with this policy, your rates will go up every year you renew.

Level Premium– Most term life policies will allow your premiums to be level, which means that no matter what happens your premiums will be the same amount until your policy expires.

Return of Premium– If you are confident that you will outlive your policy then you should consider Return of Premium term life insurance. This type of policy allows you to receive all your premiums back by the end of your insurance term if no death benefit has been paid.

Simplified Issue Term– This type of policy is best suited for those who suffer from any medical issues or have a troubled medical history because this type of term life insurance allows you to receive coverage without a medical exam. You will have higher premiums to pay in exchange for this policy, but at least you will get coverage since most life insurance companies don’t give coverage to high-risk clients or those with a troubled medical history.

Work with us!

If after reading this article you decide you no longer want to buy a 5-year term life policy because you realized it costs the same as a 10-year term life policy or simply realized you don’t want a term life policy, instead you want a permanent type of life insurance then we recommend the same thing for everyone, shop around for quotes. Read some reviews, find out the company’s rating, and in general compare quotes. We know It can be time-consuming trying to DIY but that is why you should work with an independent life insurance agency (like us) who can do all the comparisons for you. Here at InsureChance, we work with over 60 top “A” rated companies and have zero ties with any of them because our loyalty is reserved for our clients. Our service is free and we have many options to choose from, give us a call if you have any questions or concerns 888-492-1967