What
Is Term Life Insurance?
“Cheap Life Insurance
for the Short Run”
Term life insurance provides inexpensive death protection
and pays a benefit to your beneficiary if you die within
the given term period. It is commonly referred to as “temporary
insurance” or “renter’s insurance” because
most people keep term insurance for a short period of time
and then drop the coverage when it is no longer needed. Term
is extremely popular because you can buy very large amounts
of life insurance coverage without paying an excessive premium.
How Does Term Life
Insurance Work?
Term life is the simplest type
of life insurance. It is designed to cover short term
needs and doesn’t
build cash value. Rates for term insurance are calculated
based on your age, gender, health history and tobacco
use. The younger you are and the better health you are
in, the lower your rate. However, as you get older, the
cost for term insurance increases and at some point can
become cost prohibitive
Because term life premiums eventually increase in the
future, most people drop their policies long before their
ultimate life expectancy. For this reason, insurance
companies generally have very favorable claims experience
with term life making it a very profitable part of their
overall business. This explains why term insurance is
so cheap and as a result is one of the most popular types
of life insurance you can buy.
Overview: Types of Term Life Policies
There are several variations of term life insurance and
the one that makes the most sense for you will depend
upon your specific needs. The different types of term
life include annual renewable term
(ART), level
term, decreasing
term, return
of premium (ROP) term, and term
insurance for life. Among the different term policies, 10-year level term insurance is by far the most popular. For
more information on term insurance see, "What
are the Types of Term Life Insurance?"
Renewable and Convertible Term Life
Most term life insurance policies have a very important
contract feature known as renewability. This renewable
provision allows you to continue your insurance policy
without proving your health as long as you pay your premiums.
Depending on the type of term policy, your cost may increase
dramatically over time but the insurance company cannot
cancel your policy for any reason as long as it is renewable.
Most term life insurance policies are renewable to age
95.
Another crucial term life insurance contract provision
is called the conversion privilege. If your term policy
is “convertible”, you can “convert” or
exchange a term policy for a whole life or universal
life policy without proof of good health or evidence
of insurability. The conversion privilege is crucial
in situations where you have a significant health change
that affects your ability to qualify medically for new
life insurance at a reasonable rate or especially when
you become uninsurable. In general, you should look for
a term life policy that offers a very long conversion
period usually to age 70 or longer.
Term Life Insurance Policy
Riders
Riders allow you to add coverage and benefits to your
term policy for a small extra premium. Life insurance
companies writing term insurance usually offer policy
riders such as spousal term, children’s insurance,
waiver of disability, accidental death and dismemberment
(AD & D) and accelerated death benefits. For more
detailed information on policy riders see, “Life
Insurance Riders Defined.”
Why
Term Life?
As discussed, term life is great
for temporary needs. It really
makes the most sense when you
are trying to put a “band aid” on a potential problem until
you can cover it yourself. Term insurance can also be
thought of as a “bridge” to get you from
Point A to Point B. For example, you buy term insurance
now (Point A) to protect your mortgage and once your
home is paid off (Point B), the coverage is no longer
necessary and can be discontinued.
Another reason to buy term is that you can really get
the amount of life insurance you need without paying
a fortune. While whole life and universal life are great
policies, most people cannot afford to pay the premiums
to have the amount of life insurance they really need.
Supplementing a majority of your life insurance with
term is a great way to get the amount of insurance you
really need to cover your family without breaking the
bank! For more details on the uses for term insurance
see, “Why
Buy Term Life Insurance.”
Summary
Term life insurance is the simplest and easiest to understand
form of life insurance. It is inexpensive relative to
other types of life insurance because it is designed
to provide temporary protection only and builds no cash
value. There are several important features you need
to consider when buying term life including the renewability
and convertibility of the policy. If you are
shopping for a term policy, call MEG Financial today
toll free at (877) 583-3955. We represent the
top companies offering term life insurance and can help
you identify the most competitive policy!
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