Your Guide to Term Life Insurance

The type of life insurance you buy is a big decision, and there are a couple of different kinds from which to choose. Term life insurance is a popular option for many, mainly because it’s affordable and uncomplicated. Get the facts about term life insurance to choose wisely.

What Is Term Life Insurance?

Term life insurance provides coverage for a specific term or period of time, which might be short as in a year or two, or it could be as long as 20 or 30 years. If you die while term life insurance is in place, your policy delivers a payout to your beneficiaries. If you don’t die during the term of your life insurance, no payout will occur. Many term life insurance policies have policies about the maximum issue age, eliminating older people from getting this type of coverage.

Types of Term Life Insurance

You have a few different types of term life insurance to consider.

  • Level term policies offer coverage for a specific period of time. Your premiums and death benefits are fixed, meaning they don’t change. This type of policy is priced so the premium reflects rising costs over the term, so premiums are often higher.
  • A yearly renewable term policy renews each year without a specified term. Your premiums will be lower in the beginning, but they’ll increase as time passes. Many people opt to discontinue this type of insurance eventually, because the premiums get too high.
  • Decreasing term insurance offers death benefits that get less with each passing year. You pay a fixed premium for the term of the policy for less payout.

Whole Life Insurance Vs. Term Life

The main difference between whole life insurance and term life is the term of the policy. Whole life stays in effect for your entire life, providing ongoing coverage that won’t expire. It also serves as an investment, because it has a cash value that grows in tax-deferred status. You can borrow against the account if you need money, but you’ll have to repay what you borrow with interest or your death benefits decrease. If you surrender your whole life insurance policy, your coverage stops.

Whole life insurance premiums don’t change, and your death benefit amount is guaranteed. Your policy’s cash value also accrues at a guaranteed rate.

What Is Graded Life Insurance?

Graded whole life insurance is for people with health issues. If you have health problems that might prevent you from getting health insurance, graded life insurance will limit your death benefits initially. Each year your beneficiaries would receive an increasing percentage of the death benefit until you reach the point where the policy would pay out the full amount.

Converting Term Life Insurance

You’ll probably have an option to convert your term life insurance to whole insurance. If you’re less than 70 years old, this might be a good option. This could also be a good idea if you want to continue having life insurance, but your term policy is getting too expensive. Those who are setting up an estate or a trust might also consider converting their term life insurance.