There are two major types of life insurance—term and whole life. In this article, I will be giving a basic overview of term insurance. In my next article, I will focus on whole life insurance.
Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from 10 to 30 years.
What are the benefits of term life insurance?
- Low Prices – Term is the most affordable type of life insurance you can buy. It usually offers the greatest amount of coverage for the lowest premium. The better your health and the younger you are when you purchase a term life policy, the lower your rate will be.
- Guaranteed Renewability – If you pay your premiums on time, your coverage will remain in place and you won’t have to take another medical exam if you decide to renew your policy.
- No Hidden Fees – Since term life policies don’t generate cash value, they’re less complex and easier to understand than other types of life insurance. You get exactly what you pay for—coverage for a set period.
What are your options at the end of your term?
If you want to extend your coverage once your term is over, you have three options:
- Convert to a Permanent Policy – These types of policies have significantly higher premiums than term life insurance so they can be expensive. Also, health issues are not considered because no medical exam is required for conversion to a permanent plan.
- Renew Your Policy at an Annually Increasing Rate – If you’ve paid all your premiums, you’re able to renew your level term life policy at the end of your term. Please note the rate will be higher than what you paid during your original term. If you decide to renew your policy, your premium will increase every year. Decreasing your overall coverage is one way to reduce costs.
- Shop for a New Level Term Policy – You can try to get a new policy from a new company or your current one. You’ll pay the rates for your current age and your premium will depend on your insurability. A medical exam will probably be required. A newly underwritten policy can be cheaper than your annual renewal rates if your insurability hasn’t changed much.
Hopefully you have a better understanding of term insurance. Stay tuned for my next article on whole life insurance.