Term Life Short Definition

Term insurance is a form of temporary insurance where you are insured for a specific time period for example 1, 5, 10, 20 or 30 years and may be useful for those who foresee decreasing insurance needs during their lifetimes. If the insured dies within the time period, the death benefit would be paid. If the policy expires then no benefit is payable unless the return of premium option is invoked. Term policies have no accumulation of cash value like permanent insurance such as Whole or Universal life.

Term Life Cost

Insurance premiums can increase with age and some stay the same depending on the type of policy. Also, if the term ends and you want a new term policy then the premiums are likely to be higher due to age. Term is the least expensive of all the insurances especially when younger and in good health. Dollar for dollar you will get the most coverage for the least amount of money with Term.

Term Life Negatives

There are a couple of drawbacks to having only a term policy. One is that term is not suitable for lifetime protection because it will expire and the other is that term does not develop cash values whereas whole life and universal life do. A combination of term and a permanent policy is a pretty good option for the long haul.

Term Life Value

Some people believe that using term is the best way to go starting out. They say that since term is less expensive you can put the extra money you would have spent on whole life or universal life into a good investment portfolio. This supposedly should build a source of money that can be used if needed without depending on the guaranteed cash values permanent policies such as whole life accumulates. Sure stocks, bonds and mutual funds may…I say may provide better returns but are you going to be disciplined enough to manage this?

Many consumers are quite capable of managing the savings/investment side of their own financial plans and using term insurance often makes it possible to maximize the dollars available for investment. However, some consumers need to be “forced” to save at safer fixed rates using something like whole life. Some universal life offers the advantage of controlling investment as well but I personally like my whole life policy to do its job without thinking about it…covered for life. I just feel that insurance is a necessity and that cash value is just a bonus if needed later on.

End of Term Options

Policies may be renewable, or convertible, or both for a specified number of years without requiring evidence of insurability. Evidence of insurability is a requirement by an insurer that the insured provide information that meets the insurer’s underwriting standards for eligibility.

Renewable means that a policy can be renewed for additional periods without evidence of insurability but may be limited to the number of renewals, or to a specified age. At renewal the new premium will depend on the insured’s age at the time. A term policy is only renewable if the contract includes a renewal clause meaning any other would be a nonrenewable policy and a new policy must be applied for.

Convertible means the insured may convert to a permanent type of contract such as whole life without evidence of insurability. The right to convert may be limited to a number of years or to a specified age. The premium for converted policies will be based on the insured’s age at the time of conversion which is why I recommend whole life products now instead of later because premiums will just be higher later on and you will accumulate some cash value. Use term for your working years or to cover a mortgage and whole life or universal life to cover end of life expenses at minimum. Personally I like whole life.

Return of Premium option

Many Term policies offer what is called ROP or return of premium as an option. The cost can be higher but the benefit is that after the term ends such as a 20 year then the total of all money paid in will be paid back to the insured or owner if they have not died. If the insured dies before the term has ended, then the benefit is paid and policy ends with no more payouts.