Protection for Your Family for a Specific Period
Term life insurance provides protection for a specific period of time, or term. It is most often sold in -10,-15, -20 and -30 year terms. The premium stays the same throughout the term. If the insured person dies during this period, the beneficiaries receive the proceeds income tax-free. At the end of each term, the insured may renew the policy (generally at a higher cost) up to age 95.
Advantages and disadvantages of term life insurance:
- Term life insurance can provide essential protection for your family. It is less expensive than other life insurance options.
- Keep in mind that as your life changes (for example, marriage, birth of a child or a job promotion), so will your life insurance needs. You should weigh any associated costs before making a purchase. Life insurance has fees and charges including costs of insurance that vary based on the insured person's gender, health and age. There are additional charges for riders that customize a policy to fit your individual needs.
- If you want to purchase another policy after your term ends, you may have to show evidence of good health to purchase continued protection. An annual renewable term policy may not require this, but your premiums may increase each year.
- The downside of term life insurance is that it isn't a permanent life insurance solution. Once the term ends, the coverage ends or the premiums increase dramatically. And, the older you are, the more expensive it gets.
- Fortunately, you can convert many term life insurance policies to a permanent insurance product such as whole life insurance, universal life insurance or variable universal life insurance.
Are there diff erent kinds of
term life insurance?
Annual Renewable Term
The death benefi t is a level amount. The policy is automatically renewed the next year without evidence of insurability. However, the premiums may increase each year with age..
The death benefi t is a level amount. The policy is generally purchased for a period of 10, 20 or 30 years, and the premium will often remain level over the entire period. Premiums will generally be higher than the initial premium for an annual renewable term of the same face amount. But, the premium will remain the same in later years when the annual renewable term premium is still increasing.
Typically used to help pay the mortgage, decreasing term maintains a level premium over a specifi c number of years and the benefi t decreases every year until the selected term period expires. For example, you may purchase a $100,000, 30-year policy to help provide funds that may be used to pay the mortgage in the event of your death. The life insurance benefi t will decrease with your mortgage over time. After 30 years, your coverage will end.
You may receive off ers in the mail for mortgage insurance or credit insurance. They are really off ering you a type of term insurance — and at a hefty price. If your health is good, you may be able to purchase an individual term policy to provide this coverage at a fraction of the cost.