Term – Affordable protection when you need it
Term insurance is probably the most basic form of life insurance. It provides affordable protection often with a guaranteed premium. If the insured dies while the policy is in force, the face amount is paid to the named beneficiary.
At the end of the premium guarantee period, the insured can renew the cover at a higher premium. The premium for term insurance is initially lower than a comparable permanent insurance policy; however, it can increase at each renewal. This initially lower premium usually makes term insurance an ideal choice for people with a temporary need for life insurance protection.
When is the term the right choice for you?
A Temporary Need for ProtectionTerm insurance is often used asprotection when a loan is taken.A term policy in the amount of the loan could assure that the debt is repaid, in the event the insured dies. A business owner who borrows money to enlarge his or her operation could purchase a term policy in the amount of that loan. Often, homeowners choose term
insurance to protect their mortgage over the life of the loan, or parents who are funding a child’s college education could use term as a hedge until that child graduates. Whenever life insurance is needed for a relatively short period
Limited Funds for Permanent
Life Insurance
In situations where life insurance is essential but dollars are scarce, term could serve as a stop-gap. Individuals fresh out of college and starting a career may want to consider term coverage. If they’re like many recent graduates, they probably have student loans that need to be repaid. If they should die before the loans are repaid, that obligation could fall to their estate and their family. Term insurance could safeguard against that, and when they’ve achieved some level of success and have sufficient funds, they can convert the term policy int
A Supplement to Permanent Life Insurance
An excellent use of term insurance is as an added “rider” to a permanent plan. Let’s say an individual requires $200,000 in life insurance coverage, but can’t afford the premium for a 100% permanent plan. An affordable option may be to purchase a $50,000 permanent policy with a $150,000 term rider. That mixture would provide the desired amount of coverage with limited cash value accumulation, at a premium that fits within a given budget. In the future, when income increases, the term portion can be converted into permanent insurance.
The Conversion Privilege
Unlike permanent insurance, term does not accumulate cash value, and in most instances does not earn dividends. That is why one of the most valuable benefits of a term policy is the conversion privilege. Many term policies offer the ability to convert term coverage into permanent insurance without submitting proof of good health. This privilege is usually available during the first several years of the policy. If permanent insurance is not within your budget at the present time, the conversion privilege guarantees your insurability at a later date — even if you become uninsurable. Most companies offer different possibilities for conversions, so be sure to
discuss these options with your life insurance agent .
What to Look for in a Term Policy
Most experts say it’s not advisable to simply shop for the policy with the lowest premium. Before worrying about saving a few bucks, you’ll want to look closely at the features it offers.
- Be sure that the policy is guaranteed renewable —that is, you can renew your policy without a physical exam.
- Also be sure it contains a conversion privilege.
Together, these two features offer protection of your future insurability. For many years, insurers have offered a lower cost premium to non-smokers. Recently, some companies have added an additional standard premium class for individuals who smoke, but are otherwise in good health, and non-smokers with minor medical impairments. If one ofthese situations applies to you, it could save you money. Be sure to purchase a policy that’s backed by a company with financial strength, a reputation for integrity, and dedication to its clients.
How much life insurance do you need?
Use our insurance calculator to find out >
