Term Life Insurance
A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.
Term insurance offers protection that insures your family for a specified and finite period of time -- usually one, five, 10 or 20 years, or up to age 65. A term insurance policy pays a benefit only if you die during the period covered by the policy. If you stop paying premiums, the insurance stops. At the end of the term, the coverage ends, but it can be continued for another term if you have a "renewable" policy. Under such a policy, you will not have to provide evidence of insurability to renew the policy, but each time you renew, your premiums will be higher because you are older.
If you have term insurance that is "convertible," you can exchange it for a whole life policy without a medical examination, but you should expect to pay a higher premium. The amount of the whole life insurance premium remains the same for the rest of your life.
Term insurance is initially cheaper than other types of policies that offer the same amount of protection. Therefore, it gives you the greatest immediate coverage per dollar. For this reason, it is useful to those consumers who need large amounts of coverage for a known period of time -- for example, home buyers, parents of young children or people with high current obligations.
Term insurance is also available in other forms. One common type reduces coverage over time, paying less to the beneficiary as time passes. It is often used to protect a long term decreasing debt, such as a home mortgage.
Term Policies provide life insurance for a specified period of time. These policies provide benefits in the event of death, but they generate no cash value. If you have a limited amount to spend, and only need insurance for a finite period of time, you may be able to get more coverage by buying term insurance than by buying cash value insurance. Keep in mind that the cost of term insurance increases as you get older, which may make it more expensive than cash value insurance in the long run. Today’s term policies usually have two sets of premiums -guaranteed maximum premiums and current premiums. Current premiums are usually much lower, but they can be changed by the insurance company. The insurance company cannot increase the current premium above the guaranteed maximum premiums shown in the policy. When you buy term insurance, you need to make a choice as to how long you want the protection. You may renew the policy without a physical examination for the period of years specified in the policy. Some term insurance can be converted to cash value insurance up to a specified age with no physical examination. Premiums for the converted insurance will most likely be higher than the premiums you would be paying for the term insurance.
Term Life Insurance policies provide a check to your beneficiary when you die. Term Life Insurance policies generally are cheaper and easier to understand than other kinds of life insurance policies. Term Life Insurance usually offers you the best value for your money by giving you the biggest death benefit for your premium dollar.
Term Life Insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term.
You can renew most Term Life Insurance policies for one or more terms even if your health has changed, although you may be required to complete a medical questionnaire and might be refused insurance if your health is poor. But each time you renew the policy for a new term, premiums may be higher because you will be older. If you are thinking of buying Term Life Insurance, make sure you can afford the premiums for as long as you want to keep the policy. You should ask the company to show you how you could expect premiums to increase over a 10-year or 20-year period.
To avoid yearly increases, you may want to look for 5, 10, 20, or even 30-year renewable Term Life Insurance policies where the premiums will stay the same for those periods. These long-term policies may "lock in" premiums for as long as you need a high level of insurance, e.g., until your mortgage is paid or your children graduate from college.
Most Term Life Insurance policies are convertible. You can exchange your Term Life Insurance policy for a Whole Life or other type of insurance policy without taking a medical exam or answering any health questions. You may decide to convert your Term Life Insurance policy if your health declines; it may be difficult for you to qualify for a new Term Life Insurance policy at affordable rates. Conversion is usually allowed until age 65.
Term insurance is pure life insurance. Term life insurance is generally less expensive than other life products because when you buy a term policy you pay for life insurance and nothing more!
Term life insurance: Most consumer advocates feel that term insurance is the best life insurance buy. Term is different from "whole life" or "ordinary life" in that you build up no equity, or cash value. In term, you pay each year for the cost of insurance, which typically increases annually as your chances of being alive the next year decline. Most term policies are renewable on an annual basis, and some have level premiums or a decreasing death benefit for a stated period -- one, five or ten years, or even to a specified age.