TERM LIFE INSURANCE

Term is one of the most commonly used types of life insurance policies. It generally provides protection for a stated period of time, which can be any period from 1 to 30 years. Term policies are well suited for use when there is a limited time needed for protection and when limited dollars are available for coverage since it can be purchased in large amounts for a relatively small initial premium. During the term period, called the level-premium period, your premiums are guaranteed not to change. Term insurance can help protect your beneficiaries against financial loss resulting from your death. If the insured dies while the policy is in effect, the policies beneficiaries will receive the amount of the death benefit, generally income tax free. Term policies do not build cash value. The premiums for these types of policies are significantly lower than the costs for permanent life policies such as whole life or universal life, but do provide more insurance protection per dollar spent than permanent policy.

Term policies typically have additional common features: 

Annual Renewable feature: 

This policy provides protection for one year, but allows the insured to renew the policy for successive periods thereafter without having to furnish evidence of insurability.This can be an advantage of annual term life coverage as you get older or if you become ill. Even if you no longer meet a company’s underwriting criteria, the company must still renew your policy. However, you must renew your policy each year and premiums will go up as the likelihood of death increases. Annually renewable premiums can become extremely high for people past middle age. If you’re paying high annually renewable premiums, it might be wise to consider another type of coverage to lock in a premium with a longer term.

Convertible feature: 

The option to convert the policy, which means you can convert your term policy to a permanent policy without having to take a new medical exam or go through the underwriting process. Term conversion provisions differ, depending on the policy. The period of time during the term in which you have to convert or to what age you may request a conversion may take place will differ with each policy and life insurance carrier. You can convert the term policy for a permanent life insurance policy of equal or lesser value. For example, you could convert a $250,000 convertible term policy into a $150,000 permanent policy without going through the underwriting process. Questions about your health or medical history will not be required. The new permanent policy premium, in this case would be based on the $150,000 death benefit, however, converting a policy will typically increase your premium because cash value coverage usually costs more than term life and is based on current age. Convertibility can be an important feature if your health worsens and you can’t qualify for additional term or a permanent policy in the future. Converting a term life policy to a permanent policy can also allow you to use your policy to build savings through potential cash value buildup in the policy.

Level Term: 

This policy has an initial guaranteed premium level for the entire specified period; the longer the guarantee, the greater the cost. Level term life insurance sets a term length and averages the insurance risk across the entire term, allowing your premiums to stay constant year after year

Decreasing Term:

 This policy has a level premium, but the amount of the death benefit decreases with time. You may want to opt for decreasing term life insurance in which promised benefits decrease year after year and are in relation to your decreasing need for financial protection. This is often used in conjunction with mortgage debt protection.

Term Ladder Strategy:

 A strategy that can reduce costs of life insurance in your later years.  Set up a term ladder coverage strategy where the amount of coverage is greater in the earlier years of a policy and then coverage amounts and therefore premium cost is reduced in later years at a point in time when the financial protection needed is not as high, such as when children’s education is no longer an issue.

Return of Premium(Term)

Return of premium (ROP) is a form of term life insurance. It performs the same function as typical term policies accept with one substantial difference. It features an interesting twist that might be of interest to some policy holders. A ROP policy can return an amount equal to the premiums paid during the coverage when the level premium period ends, if the policy holder is still living and has kept the policy in force.