“Cheap Life Insurance for the Short Run”
Term life insurance provides inexpensive death protection and pays a benefit to your beneficiary if you die within the given term period. It is commonly referred to as “temporary insurance” or “renter’s insurance” because most people keep term insurance for a short period of time and then drop the coverage when it is no longer needed. Term is extremely popular because you can buy very large amounts of life insurance coverage without paying an excessive premium.
How Does Term Life Insurance Work?
Term life is the simplest type of life insurance. It is designed to cover short term needs and doesn’t build cash value. Rates for term insurance are calculated based on your age, gender, health history and tobacco use. The younger you are and the better health you are in, the lower your rate. However, as you get older, the cost for term insurance increases and at some point can become cost prohibitive
Because term life premiums eventually increase in the future, most people drop their policies long before their ultimate life expectancy. For this reason, insurance companies generally have very favorable claims experience with term life making it a very profitable part of their overall business. This explains why term insurance is so cheap and as a result is one of the most popular types of life insurance you can buy.
Overview: Types of Term Life Policies
There are several variations of term life insurance and the one that makes the most sense for you will depend upon your specific needs. The different types of term life include annual renewable term (ART), level term, decreasing term, return of premium (ROP) term, and term insurance for life. Among the different term policies, 10-year level term insurance is by far the most popular. For more information on term insurance see, “What are the Types of Term Life Insurance?”
Renewable and Convertible Term Life
Most term life insurance policies have a very important contract feature known as renewability. This renewable provision allows you to continue your insurance policy without proving your health as long as you pay your premiums. Depending on the type of term policy, your cost may increase dramatically over time but the insurance company cannot cancel your policy for any reason as long as it is renewable. Most term life insurance policies are renewable to age 95.
Another crucial term life insurance contract provision is called the conversion privilege. If your term policy is “convertible”, you can “convert” or exchange a term policy for a whole life or universal life policy without proof of good health or evidence of insurability. The conversion privilege is crucial in situations where you have a significant health change that affects your ability to qualify medically for new life insurance at a reasonable rate or especially when you become uninsurable. In general, you should look for a term life policy that offers a very long conversion period usually to age 70 or longer.
Term Life Insurance Policy Riders
Riders allow you to add coverage and benefits to your term policy for a small extra premium. Life insurance companies writing term insurance usually offer policy riders such as spousal term, children’s insurance, waiver of disability, accidental death and dismemberment (AD & D) and accelerated death benefits. For more detailed information on policy riders see, “Life Insurance Riders Defined.”
Why Term Life?
As discussed, term life is great for temporary needs. It really makes the most sense when you are trying to put a “band aid” on a potential problem until you can cover it yourself. Term insurance can also be thought of as a “bridge” to get you from Point A to Point B. For example, you buy term insurance now (Point A) to protect your mortgage and once your home is paid off (Point B), the coverage is no longer necessary and can be discontinued.
Another reason to buy term is that you can really get the amount of life insurance you need without paying a fortune. While whole life and universal life are great policies, most people cannot afford to pay the premiums to have the amount of life insurance they really need. Supplementing a majority of your life insurance with term is a great way to get the amount of insurance you really need to cover your family without breaking the bank! For more details on the uses for term insurance see, “Why Buy Term Life Insurance.”
Term life insurance is the simplest and easiest to understand form of life insurance. It is inexpensive relative to other types of life insurance because it is designed to provide temporary protection only and builds no cash value. There are several important features you need to consider when buying term life including the renewability and convertibility of the policy. If you are shopping for a term policy, call MEG Financial today toll free at (877) 583-3955. We represent the top companies offering term life insurance and can help you identify the most competitive policy!