Term Life Insurance

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Term life insurance is one of the two basic types of insurance policies (the other is permanent life insurance) offered all over the world. Although it may be marketed under different names across the global insurance industry, it is also commonly referred to as temporary life insurance.

As its name implies, term life insurance provides protection over a fixed period, expiring after a set term of, typically, 5, 10, or 20 years. However, many companies offer a fixed term of anywhere between 1 and 30 years, with 20-year policies being the most popular.

Term Life Insurance Premiums

Premiums for this type of insurance are understandably much lower than the permanent type (which remains in effect throughout the policyholder’s lifetime). This lower cost is one of the main attractions of a term life insurance policy. The reason this type of insurance is relatively inexpensive is because the only thing you are paying for, basically, is a death benefit—which is the lump sum the insurance company will pay your beneficiaries if you die within the term of the policy.

Who Should Consider Term Life Insurance?

Term life insurance is the choice for you if you are starting a family or have young children. This time period is usually when finances are a bit tight. But since you have a family to take care of, this is a crucial time for you to have a safety net prepared for any eventuality. Term life insurance allows you to get great coverage for a relatively low price during a time when you need coverage the most.

What are the Disadvantages?

If you decide that you still need coverage after your term life insurance expires, many policies contain an option to renew coverage. However, there are some disadvantages:

• You may be charged higher premiums. One of the critical factors that determine insurance premiums is age, and your underwriter’s evaluation may change after 10 or 20 years.
• You may have to present some evidence that you are a good risk. This simply means that you will have to take a new medical exam. You will also, again, be asked about your health, lifestyle, family history, etc.
• Most people find term life insurance impractical in the face of deteriorating health and would rather opt for permanent insurance. But if you lead a healthy lifestyle and are confident that you are not saddled by a family history of diseases then term life insurance is the way to go.

Term Life Insurance – Three Basic Things to Consider

Do not decide on a term life insurance policy solely on the basis of low premiums. Instead, consider three basic things before you purchase a policy:

• How long will you need life insurance?
• What terms of renewal does your insurance company offer?
• What are the terms of conversion to permanent life insurance?

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