Term Life Insurance 101

Term life insurance is basically a “no-frills” type of life insurance. It is life insurance for a specified duration limit or time. You buy a specific amount of coverage for a specific time period by signing a contract. You pay for that coverage period and at the end of the term, the policy expires. For example, the term might be until retirement, or until children are grown, or until college is paid for.

Term life insurance is the least expensive available insurance policy and allows you to spend a lot less and use the extra money in a better investment. It does not build up cash value and the premium normally increases as the policy owner gets older. Usually, term life insurance covers a specific term such as a term of 1 year, a term of 20 years or a term of 30 years.

If you die while the policy is active, term life insurance provides a stated benefit for it; and your survivors will be paid the agreed-upon amount. However, the policy does not provide any returns beyond the stated benefit and once the policy expires, the insurance coverage ceases and the insurance company keeps the money. Some term insurance policies give you the right to renew at the same rate for multiple years, while others do not. The former is generally a bit more expensive.

Term life insurance is most suitable for you, if you are:

  • In need of coverage for a limited period of time,
  • Young and looking for lower premiums,
  • Buying a home or car, where the financial burden of a loan will disappear in time.

Term life insurance policies must be renewed when each term ends. Before buying a term life insurance policy, you should ask about the renewal provisions for the protection of your future insurability. There are some typical choices:

  • Annual Renewable—–the premium goes up each year.
  • Level Term—–the premium stays the same for a specific period like 5, 10, 15, or 20 years, then increases sharply.
  • Automatic Renewable—–you’ll have to pay more for this feature.

Some other options on term life insurance policies may include:

Re-Entry

It requires a lower premium than an automatically renewable policy. You can renew at the same low rate offers to a new customer, but you’ll have to pass a physical examination. If you’ve developed any health problems, your premium could go up and cost more than an automatic-renewable policy.

Convert-able term

You’ll have the option to convert to a whole life insurance policy in later years.

Conclusion

Don’t Wait Until You Need Life Insurance to Get It

Term life insurance provides life insurance coverage for a specific amount of time. If you or your spouse passes away at any time during this term (usually 20–30 years), your beneficiaries (those you’ve selected to inherit your money) will receive a payout from the term life insurance policy.

According to Dave Ramsey, “the ideal time to buy life insurance is when you’re young and have a clean bill of health. Especially since life insurance companies are all about weighing the risks of the person purchasing the policy.”

The best time to buy life insurance is today! Don’t let another day go by without being protected by term life insurance.

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