Term life insurance is basically a “no frills” type of life insurance. It is a life insurance for a specified duration limit, or time. You buy a specific amount of coverage for a specific time period by signing a contract. You pay for that coverage period and at the end of the term the policy expires. For example, the term might be until retirement, or until children are grown, or until the mortgage is paid for.
Term life insurance is the least expensive available insurance policy option available. It does not build up cash value and the premium normally increases as the policy owner gets older when it comes time for renewal. Usually term life insurance covers a specific term such as term of 10 year, 20 years or term of 30 years.
If you die while the policy is active, term life insurance provides a stated benefit for it; and your survivors will be paid the agreed upon amount. However, the policy does not provide any returns beyond the stated benefit and once the policy expires, the insurance coverage ceases and the insurance company keeps the money. Most insurance companies will only extend or offer term coverage to age 75 or 80. Some term insurance policies also give you the option to convert some or all of the benefit amount to permanent insurance.
Term life insurance is most suitable for you, if you are:
- looking for the most inexpensive coverage available
- in need of coverage for a limited period of time
- buying a home or car, where the financial burden of a loan will disappear over time
Term life insurance policies must be renewed when each term ends. Before buying a term life insurance policy, you should ask about the renewal provisions for the protection of your future insurability. There are some typical choices:
- Level Term—–the premium stays the same for specific period like 5, 10, 15, or 20 years, then increases sharply
- Automatic Renewable—–renews automatically at the end of your term
- Convert-able term——you’ll have the option to convert to a whole life or universal life insurance policy in later years
It is important that you know that term life insurance is not only an inexpensive option but there are additional features included and that can be added. Speak with a life insurance broker who can not only compare rates but make sure your term policy has options that you want and is the right choice for you.
Andrew W. Bradley @AndrewWBradley