Term Life Insurance
What is term life insurance?
Term life insurance is a simple product designed to provide a tax-free payment to the people you choose, known as your beneficiaries, upon your passing. These policies provide coverage for a set period of time, which means it could end while you’re still living. And it can be a great starting point for securing protection for your loved ones.
Term Life Insurance vs Whole Life Insurance
With term life insurance, the insurance protection lasts for a set period — typically 10 to 30 years. It is a more affordable option. Whole life insurance lasts for your whole life, provided you make premium payments. The policy has an extra component called cash value, that can build up a significant, tax-deferred asset, money that can be used during your lifetime.
Types of Term Life Insurance
- Level premium- Also called level term; this is the simplest, most common type of policy: Your premium and death benefit stay the same for the entire term.
- Yearly Renewable Term- Also called an annual renewable term. This policy covers you for a year at a time, with an option to renew without a medical exam for the duration of the term – but at a higher cost each year. Compared to a level term policy, your premiums will be slightly lower at first, but over a full 10, 20, or 30-year term you will pay more than you would with a level premium policy.
- Return of Premium- This type of term policy actually pays back all or a portion of your premiums if you live to the end of the term. What’s the catch? Your premiums could be 2-4 times higher than with a level term policy. Also, if your financial status changes and you let the policy lapse you may only get a portion of your premiums returned – or nothing at all.
- Guaranteed Issue- These policies are easier to get because they don’t require a medical exam and only ask a few simple health questions at most. This also means that the insurance company has to assume that you are a risky prospect who has health issues, so your premiums may be much higher than they otherwise would be. Also, the policy might not pay a full death benefit for the first few years of coverage. If you have health issues but are able to manage them, it will usually be worth your while to get a conventional term life policy that is underwritten (i.e., requires a medical exam).