What You Need to Know About Term Life Insurance
When you’re in the market for life insurance, term life policies are about as basic as it gets. A term life policy will provide coverage to you and your loved ones for a limited amount of time, as specified in the contract that you sign when purchasing the policy. Once that time period has ended, the policy is no longer valid and you no longer have coverage. Many people commonly choose a term that will coincide with their children’s 18th birthday or college graduation, or their own retirement. Typical terms can range in length from one year to 30 years.
Term life policies are less expensive than the other alternative, whole life policies. By spending less on monthly premiums, you can save up money for other things that you need, or to invest. The term life policy itself is not an investment vehicle, because it doesn’t have a cumulative cash value. Also, each time you sign up for a new term life policy as you get older, the life insurance premiums tend to get more expensive.
If the policy holder passes away during the policy’s term, the beneficiaries will receive benefits as described in the policy’s coverage. However, if the term policy expires before the policy holder’s death, the beneficiaries will receive nothing, and the life insurance company makes a tidy profit.
If term life sounds attractive, but you’re worried about the increase in premiums each time you purchase a new policy, you should know that some term life insurance policies are written so that they can be renewed at the same cost, but these policies are almost always more expensive than policies that don’t offer this benefit.
There are primarily three reasons to buy term life insurance: (1) you need coverage for only a short time, (2) you have limited financial resources and therefore need lower monthly premiums, or (3) you’re making another major purchase with a loan, but those loan payment will no longer be a burden after a period of time.
Because policies for term life insurance must be renewed each time they expire, it’s important to thoroughly understand the process for doing so before you purchase the first policy. Some policies are renewable each year, and the premium is usually fixed for a set number of years and then rises. There are also policies that renew automatically, but they are more expensive. A covertable term policy will give you the option of changing your term policy to a whole life policy later on.
If you develop a medical condition and then your term life policy expires, you’ll probably have to take and pass a medical exam, and then expect to pay higher premiums upon re-entry to the life insurance program.
Hopefully this article has given you insight into the types of term life insurance that are available. You can use this information to your benefit when looking for an inexpensive policy that meets your needs.