Published: June 2015
When you're shopping for life insurance, you can choose from two basic types of policies: term or permanent
. If you're considering buying a term life policy, here's a brief primer on its essential characteristics and benefits.
The Basics: As the name suggests, term life insurance policies offer coverage for a specified amount of time, typically anywhere from one to 30 years.
If you pass away during the term's coverage, the policy pays out a specified benefit. The person(s) or organization(s) receiving the benefit are known as your beneficiaries. You may choose a single or multiple beneficiaries.
Good to Know: The Insurance Information Institute (III) says term life insurance can be further classified as either level or decreasing term. Decreasing term life insurance policies typically see the death benefit decrease at specific intervals during the course of the term.
Level term policies in which the death benefit does not decrease are the more common form of term life insurance, the III says.
The Basics: Term policies typically offer coverage only for the duration of your chosen term.
The cost of a policy is based largely on the insured person's health and age at the beginning of the term, says the III. Declining health or increasing age can make it difficult or more expensive to acquire a new term policy as you get older.
So, when your term ends, you'll likely pay higher premiums (or regular payments) if you renew or purchase a new policy, says the III.
If your policy is renewable, you may have the option of extending your coverage for another term, up to a specified age.
Also keep in mind that some term policies are convertible to a permanent life insurance policy, if your eventual goal is lifelong coverage. Check with your agent for specifics on convertible policies, as the conversion typically has to happen within a specified time period.
Good to Know: Some term policies allow for an increase in your premiums during your existing term. To avoid any surprises down the road, read your policy carefully and ask your agent questions up front.
Finally, some term policies offer a "return of premium" option that entitles you to have some or all of your premiums refunded at the end of the term, assuming you have made no claims on the policy, says the III. It's worth noting, however, that such policy premiums tend to be significantly more expensive than non-refundable premium options.
Buying life insurance is both a sensitive subject and an important step toward ensuring your family's financial future. Consult with your insurance agent to determine whether term life insurance meets your needs.