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What is Term Life Insurance?
The simplest form of life insurance is called term life insurance. Term life provides protection for a specific period of time. It pays a benefit only if you die during the term. If you live beyond the specified term, the policy expires without value. It is sometimes called temporary life insurance.
Term life insurance policies generally last for 5, 10, 15, 20 or 30 years. Depending upon your age and your health, you can purchase up to $250,000 of no medical exam term life insurance. If you health is less than average or if you want higher amounts, then you need to request term life insurance quotes that require an exam.
Some policies can be renewed when you reach the end of the term. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for lower rates.
Some policies are convertible. They guarantee the right to switch or "convert" to one of the company's permanent life policies. Conversion rights usually guarantee that you will be accepted for the permanent life policy regardless of your health when you convert.
Advantages of Term Life Insurance
- Initial premiums generally are lower than those for permanent insurance...allowing you to buy higher amounts of coverage at a younger age when the need for protection often is greatest.
- It's good for covering needs that will disappear in time, such as mortgages or car loans.
Disadvantages of Term Insurance
- Premiums increase as you grow older.
- Coverage may terminate at the end of the term or become too expensive to continue.
- The policy generally doesn't offer cash value or paid-up insurance.
Types of Term Life Insurance
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Level: Level term life insurance provides a death benefit that stays the same over the period. For example, a 10-year level policy with $100,000 in coverage means the company will pay $100,000 if you die any time during the 10 years the policy is in effect. Premiums normally stay the same ("level") during the term.
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Decreasing: Decreasing term life insurance provides a death benefit that decreases over the life of the policy in a specified manner. For example, the benefit during the first year of a 10-year decreasing term policy may be $100,000, and decrease by $1,000 every year. At the end of the tenth year, the face value is zero and coverage expires. Premiums for decreasing term usually remain level. Very little of this type of coverage is sold anymore.
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Increasing Increasing term life insurance provides a death benefit that increases over the term in a specified manner. For example, the benefit for a 10-year increasing term policy may have a face amount that starts at $100,000 and then increases 5% every policy anniversary date. Or the coverage may be tied to increases in the cost of living as measured by a standard index. Premiums usually increase with the coverage in this type of policy.
Tip: Insurance agents sometimes recommend that you switch term life insurance companies every couple of years to take lower your premiums. This may or may not be advisable because switching involves the risk that you would be subject to a new contestability period that lasts two years. If you die during this period, the insurance company can (and probably will) investigate the statements you made on your application. If you've given inaccurate or incomplete answers, the company may (and probably will) refuse to pay the death benefit.
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Licenses to sell life insurance:
Ohio License #104233, California License #0C94325, Florida License #D072714
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