What is Term Life Insurance
Term Life insurance pays a death benefit If you die within the period covered by the policy. This time period varies by policy, but typically can be renewed annually for anywhere from a 5 to 30 year period from when it starts.
Term insurance is characterized by two key elements: whether the annual premiums you pay stay level or can rise each year, and whether the death benefits are level or decrease each year.
Level Term vs. Decreasing Term
A level term policy has a stable death benefit that remains unchanged over the policy’s existence, while the death benefit in a decreasing term policy is reduced over time, usually by the same amount each year. Unless a level term policy is also a level premium policy (see just below), the annual premiums you pay typically rise each year over the term of the policy. A decreasing term policy usually has a level premium each year.
Level Premium vs. Increasing Premium
A regular level life insurance term policy typically has annual premiums which rise each year. Since this is the norm for the majority of term life insurance, the “increasing premium” label isn’t used often. Level premium life insurance guarantees that your annual premium will stay the same for a st number of years or even over the entire life of the policy. Since you’re insulated from price increases over time, the starting annual premium for level term life is almost always higher than regular term life.
Is the Policy Renewable?
Some term policies can be “renewed” after the initial term of 5 to 30 expires, but will probably result in higher premiums. This can allow you to maintain a current policy that otherwise might not have been available due to age and/or health.
Is the Policy Convertible?
Some short term life insurance policies can be changed into a longer term policy without requiring any additional information or medical exams. This can helpful if you’re trying to minimize cost now but preserve some flexibility in your life insurance coverage in the longer run.
Can the term insurer cancel my term life insurance policy?
If you fail to pay your life insurance policy’s premium within the company’s grace period, your provider can cancel your policy. As long as you pay your premiums, they cannot cancel your policy if the status of your health changes. If your life policy is provided by your employer and you no longer work for that company, your life insurance coverage can end, although some companies offer the option for you to “take your policy with you” as long as you pay the premiums going forward.
Will my term life insurance policy be protected if my insurer goes broke?
Each state has an association that is responsible for guaranteeing insurer funds so that you’re protected if your insurer goes out of business.
Who can take out a policy on my life? Can I take a policy out on someone else’s life?
Someone who can show that they rely on your income and will face financial hardship if you die can take a life insurance policy on you. Likewise, you can also take out a policy on someone else’s life if you’re dependent on their income.