Term life insurance is fitting for those who are looking for a little simplicity out of their policy. The top two reasons people choose term life are: (1) to protect their family by helping to replace lost income, and (2) to cover burial and final expenses. Coverage lasts for a predetermined length of time and the policy pays a benefit to your beneficiaries if you die during that term period (usually 10, 15, 20, 25 or 30 years).
There are some significant variations in term life insurance policies that you should be aware of and consider when shopping for coverage.
Level Term Life Insurance
Level term life insurance policies provide a fixed amount of coverage over a specific period of time. So, if you buy a 20-year policy with a coverage amount of $250,000, your beneficiaries will receive $250,000 if you die before the 20-year term ends. Your premium remains the same during the life of a level term policy. It will not increases. Level term is the most common type of term life insurance.
Decreasing Term Life Insurance
With a decreasing term life insurance policy, your premium usually will remain the same during the term, but the death benefit is reduced over time. Premiums for decreasing term policies are generally lower than those for level term life insurance. This type of policy may be useful for those who are paying down mortgages. If you die early in the policy’s term (when your mortgage is not yet paid off), the payout is bigger. If you die near the end of the term, chances are you’ll owe less on your mortgage, meaning your survivors won’t need as much money. Unfortunately, not many companies offer this type of policy.
Convertible Term Life Insurance
A convertible term life insurance policy allows you to convert to a permanent life insurance policy after a certain period of time. If you convert to a permanent policy during the conversion period, you won’t be required to take another paramed exam, although you’ll probably be charged a higher rate. This kind of policy can be useful for those who want to remain eligible for life insurance no matter what occurs in the future. If you develop serious health problems down the line, you still can get covered by converting your term policy to a permanent one instead of shopping for new coverage.
Renewable Term Life Insurance
If you buy a renewable term life insurance policy, you’ll have the option to continue coverage when the initial policy expires without having to prove insurability through a paramed exam. However, when you renew the policy, your premium likely will be higher to account for your age.
Return of Premium Term Life Insurance
Term life insurance typically has no investment feature. You pay premiums and if you outlive your term, the policy never pays out. If you buy a term life insurance policy with a return-of-premium feature, you can get those premiums back. You will pay significantly more for this feature, and you will be required to keep the policy in force until the term expires or forfeit the return of premium benefit. Some companies offer a partial return of premium paid if the policy is surrendered early.
Buying term life insurance is one of the most important financial decisions you can make. You and your family deserve the protection and the peace of mind that term life insurance can offer. Before making your decision, be sure to consult with a licensed agent who can guide you through the process and choose the right company for you.