Life insurance for one-year terms
[social_share]Life insurance can be bought in one-year terms as well as for longer periods. This life insurance tends to charge lower premiums than longer-term life insurance, although this doesn’t mean it’s a better value.
With most financial products, the longer the term, the lower the cost. This is especially the case with loans, but it tends to hold true for other products as well, including insurance policies other than life insurance. This is due to the fixed administrative costs being spread over a longer time.
But life insurance is different, being more expensive when purchased over longer terms than shorter ones. One reason for this is, the person gets gradually less healthy as they grow older, and the chance of dying in the next year becomes greater. It’s only logical that a life insurance policy purchased at age 35 will cost less than one purchased at 55.
Another reason is that life insurance tends to be charged the same premium price throughout the life of the policy. The idea is to prevent life insurance policy holders from cancelling the policy due to rising rates as the years pass. But this leaves the insurance provider with little choice but to price the higher costs over the coverage term into the policy from the beginning.
So just because annual life insurance is cheaper for younger buyers, that doesn’t make it better value. An annual life insurance policy must be renewed every year, and the premiums will gradually increase each year for the same amount of coverage. The buyer will have a very affordable life insurance policy when young, but the premiums will rise with increasing age and will be considerably more by middle age. Meanwhile, the premium for a longer-term policy continues at the same rate.
Most work-based life insurance policies are annual policies. This is one of the factors, along with bulk pricing, which makes them considerably cheaper than individually-purchased life insurance policies.
Annual insurance can be useful for a person facing a big financial commitment over a short period, for example, purchasing a home without a significant deposit. The annual life insurance policy will counteract the negative factor of a low or nonexistent deposit, allowing the home buyer to qualify for a more attractive home loan than would otherwise be available.
