Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Level term products are the most popular plans purchased today. The level term can be from 5 years to 30 years. The premium and death benefit are designed to stay level during the term of the contract. The premiums can be either guaranteed or not guaranteed. When purchasing a level term life insurance policy be sure you are aware of the guaranteed premium period. Once you have been approved and placed the policy in force with the first payment, the insurance company is obligated to keep the policy in force as long as you keep paying the premiums. You are not obligated to pay, but once you stop paying, the policy will lapse after usually a 30 day grace period. Some term insurance policies can be renewed when you reach the end of a specific period which can be from one to 30 years. The premium rates increase at each renewal date. Most policies require that evidence of insurability be furnished at renewal for you to qualify for the lowest available rates.
Advantages and Disadvantages of Term Insurance
Advantages
- Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.
- It’s good for covering specific needs that will disappear in time, such as mortgages or car loans.
- The new 20 and 30 and year products can provide coverage as long as most people might need life insurance.
Disadvantages
- Premiums increase as you grow older, after the term selected expires, providing it renews past that term.
- Coverage may terminate at the end of the term or may become too expensive to continue.
- Generally, the policy doesn’t offer cash value or paid-up insurance.
Questions to Consider When Considering a Term Policy
- How long can I keep this policy? If you want the option to renew the policy for a specific number of years or until a certain age, what are the terms of renewal of the contract.
- When will my premiums increase? Annually? Or after a longer period of time, such as five or 10, 15, 20, 30 or even 40 years?
- Can I convert to a permanent policy? Some policies allow you to convert the policy to permanent insurance without a medical exam, regardless of your physical condition at the time of the conversion. These policies are known as “convertible term.”
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