Term life insurance is most commonly referred to as pure insurance and for an agreed premium, based on age, health and other risk factors; it provides you with a stated dollar amount of death benefit protection for a defined period of time. Unlike the cash value policies, such as whole life, universal life, indexed universal life and variable life, which in addition to the lifetime death benefit, provide for cash value accumulation, policy loans and many other valuable benefits within the policy.
With a term life insurance policy, you may choose terms of one, five, ten years or even longer and many may be renewed at the end of each stated policy term, with a new premium based on your current age. Some may also offer opportunities within the contract for conversion to a permanent life insurance policy offered by the issuing company. This not only stops the premium increases but also now provides a savings element to enjoy a buildup of cash value within the policy. These guaranteed renewable provisions do not require medical underwriting or proof of the current medical condition, protecting the insured from a potential un-insurability issue due to a decline in health, although most term policies will not be renewable or convertible beyond age of 85.
Term life insurance is generally less costly than permanent life insurance in the early years, but in the latter years of the policy the premiums often far surpass those of permanent policies and can become quite prohibitive due to increased age bands, whereas permanent life policies offer a set level premium throughout the entire stated premium payment period within the life insurance policy contract.
I would say the simplest analogy to use here would be; you are simply renting a term life insurance policy for a set period time, as opposed to purchasing permanent life insurance protection for a lifetime. And, the big take-a-way would be; no matter what type of policy you are considering, be sure to always keep in mind, the younger you purchase any life insurance policy the lower the premium will be.
Level term policies are best used to protect against the premature death of the policy-holder. This type of protection can be used to meet many very important needs such as, income replacement, college funding for children and grandchildren as well as many business purposes. This keeps the amount of insurance protection level throughout the chosen term.
With a decreasing term policy, the death benefit reduces gradually throughout the term and may be used to protect a declining need such as a home mortgage, consumer and/or business loans or just about any financial commitment that shrinks over a period of time.
In order to keep the level of protection up to date with inflation an increasing death benefit term policy may be just the thing, but remember there may be additional underwriting required within this type of policy.
Combination policies are becoming quite common today. With a combination of term and permanent insurance, more immediate protection can be acquired at a considerable savings in premium. In order to accomplish this goal, term insurance is added to the permanent insurance policy as a rider.
Hopefully, you can now see a term insurance policy can be and is the right insurance policy to purchase today to address a number of specific insurance protection needs. While also understanding, it is surely not the best insurance purchase to make, in at least as many if not more life event protection needs, throughout one’s lifetime.
My best advice I can offer to my readers is and will always be… Before purchasing any life insurance product, be sure to speak with a qualified, licensed professional in your state. It is imperative and always wise to investigate your options before you buy!
Licensed Insurance Expert