Term life insurance can help you ensure the financial security of your loved ones after your death. It carries an expiration date, but there are options for you to continue your coverage.
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A term life insurance policy pays a death benefit to your beneficiaries if you die during the term of the policy. The policy can help your loved ones pay bills and maintain their standard of living without the benefit of your income.
Death benefits can also help to cover final expenses like funeral costs, medical expenses, and estate taxes. Without life insurance, these can place a major burden on a family after the primary income-earner has died.
There are two types of term life insurance policies. A level term policy provides the same death benefit throughout the life of the policy with increasing premiums as you age. In contrast, under a decreasing term policy, the premiums remain constant while the death benefit decreases at a predetermined rate.
In both cases, when you compare term life to other types of life insurance, term life tends to have a higher death benefit for the premium you pay at younger ages. This makes term life one of the more affordable types of life insurance.
The premium for a term life insurance policy depends on your age and health at the time you buy the policy. A policy may offer a level premium for a particular term, which means that your premium will stay the same for the term. If your policy doesn’t provide for a level premium, the premiums will increase as you get older.
Generally, level premium policies provide term lengths in multiples of five years: 5, 10, 15 up to 30 years. An insurance company may restrict the length of term based on an insured’s age or health.
Some term life insurance policies are renewable, meaning that your policy will continue to be active for another term, even if you would not qualify for a new policy. For example, if you buy a 20-year renewable policy at age 30 and develop a medical condition at 40, you can still renew your policy for another 20 years at 50. You may find, however, that your premium goes up significantly for the next term of your policy.
Insurance companies allow you to convert term to permanent life insurance anytime throughout the policy term. Common reasons for taking advantage of this option include:
Because term life insurance policies tend to cost less than permanent policies, many people purchase a term policy to serve as a bridge to a permanent policy. Permanent life insurance doesn’t expire as long as premiums are paid.
Another option is to buy term life insurance in addition to a permanent life insurance policy. This can give you additional death benefit funds for a specific period, such as while you have children at home.
Whatever your situation, term life insurance helps you plan responsibly and affordably for the future.