Term Life
Term life policies cover you only for a "term", or a specific period of time -- usually for one, five, 10, 15, or 20 years or until a specified age, such as 65.
Most term life policies provide only death benefits in the form of a check to your beneficiary for the amount of the policy if you die. Because they usually have no savings feature, term life policies generally are less expensive initially and easier to understand than cash value life policies. Term life insurance generally offers the buyer a greater death benefit for their premium dollar. However, the price of a term life policy will normally increase as you grow older. At the same time, your insurance needs may decrease as children grow up and savings and investments increase in value.
Renewable and Convertible Policies
Because term life expires at the end of the term, you should look for a renewable policy with a guaranteed term that will cover the duration you will need life insurance. A renewable policy allows you to continue your insurance as long as you pay the premium, regardless of your health. However, renewal rates increase significantly if you cannot pass a physical exam.
Some term insurance policies are convertible. This means that as your insurance needs change, you can exchange your term life policy for a cash value policy without taking a medical exam or answering health questions. You may choose to convert your term life policy if your health declines and it becomes difficult to qualify for a new term policy at standard rates. You also may convert your term life policy if you decide to use insurance as a way of accumulating funds instead of providing only death benefits. Insurance companies usually allow conversion until age 65.
Common Policy Variations
Annually Renewable Term (ART) - You may renew most ART policies up to age 95. However, ART premiums are extremely high for middle- and older-age consumers. If you are paying high premiums, you may want to shop around for a better value, especially if you are in good health.
An ART provides a fixed premium and death benefit for one year. When the term ends, you may renew your policy, but the premium will probably increase. To avoid yearly increases, some people look for five-, 10-, or 20-year renewable term policies.
Decreasing Term - This policy provides death benefits
that decrease each year. Mortgage insurance and credit life insurance are
examples of decreasing term policies. The initial death benefit may equal
or approximate the amount of your loan, with the benefit decreasing as you
pay off your loan. If you die, the insurance benefits pay off or reduce
your loan balance.