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Term Life Insurance that's Best for You

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Term Life Insurance that's Best for You

Term life insurance covers your life for a set length of time. That's why they call it "term" life insurance. It's only for a specific period of time -- or term. And that's all.

Sometimes term life is referred to as "pure" life insurance, because there's no investment component tacked onto the policy. As a result, term life insurance is generally cheaper than other forms of life insurance. It's the simplest kind of life insurance.

Because term life is strictly life insurance coverage, that's all you're paying for and that's all you get. If you die while the policy is in effect, it will pay your beneficiary the face value of the policy. That's what you're paying for, so that's what you get.

If all you want to do is insure your life for your family and dependents (or for some other limited protection, such as mortgages or other loans) and pay the least amount of money as possible -- term life is the way to go. You can generally buy term life policies that last from 1 to 30 years. The policy expires at the end of that time. If you're still alive, you're no longer covered by that policy.

Term policies have adjustable premiums. That means the life insurance company can raise or lower your premiums based on the earnings of the company's investments, what they call "mortality experience" (which means that if people in your age bracket start dying more or less than originally predicted) and their expenses.

However, the policy may state maximum premiums that the policy may never exceed. If you reach the end of the coverage period and you wish to continue being protected, the company may renew the policy for a set period. Also, some services will allow you to convert from a term policy to a whole life policy.

There are two types of term insurance:

1. Level premium or level term insurance

2. Annual Renewable Term (ART)

To understand the difference, you must remember that life insurance is cheaper the younger you are. That's because the younger you are, the less likely you are to die. It follows that as you grow older; you're more likely to die. And therefore the insurance provider should charge you higher premiums.

This is not so important with short-term term life insurance policies such as five years -- but it makes a big difference with longer-term policies. Take out a policy at age 35 for thirty years, and toward the end of the coverage you're much more likely to die than you were at the beginning.

So the provider must take that into account. They look ahead at the odds of your death -- even if you don't want to.

Level Premium Term Life Insurance

However, most policyholders get used to paying a certain amount of money for things. We don't want the premiums of our life insurance policies going up -- especially when that means the odds of us dying are getting higher.

So insurance companies calculate how much the premiums should be from year one to year 30, then charge you the annual average of all 30 years. It doesn't change except for changes in their expenses, and is limited by the terms of the policy. It remains relatively flat -- or level.

So that's level premium term life insurance. When you are insured with such coverage, you're actually paying more than necessary in the early years and less than necessary in the later years. The advantage of such safeguard is that you know the annual expense. Plus you don't have to be reminded that for every year you get older, you're a little more likely to die.

Annual Renewable Term Life Insurance

The other way to purchase term insurance is as annual renewable term (ART) policy. Your premiums pay for your term insurance for one year at a time, but you have the right to renew each year, and the indemnity company guarantees you will be accepted for from 10 to 30 years, up to age 95.

However, since each year that you live makes you one year older and therefore more likely to die, these premiums do go up in price as the years ago by. Also keep in mind that if you applied for a new life insurance policy each year, you might eventually find yourself uninsurable.

Say you take out an ART policy for 30 years. For the first 20 years you're very healthy. But in the 21st year you discover you have pancreatic cancer. No insurance company is going to insure you when you have such a terminal illness. But with an ART policy you retain the right to renew the coverage every year for the full term period of the policy.

The financial advantage is that when you first take out such a policy, you're younger and can't afford to pay as high a premium. The premium is lower (because you're still young) and therefore more affordable to you. As you grow older, the premium increases but hopefully so has your income.

Financially, annual renewable term life insurance makes more sense. Emotionally, if you prefer not to be reminded every year that you're getting older, level premium term life insurance makes more sense.

Choose The Term Based On Your Family's Needs

You must choose the most logical term for the policy. If you're now 25 and are married and have one child and you and your spouse are planning to have more, you should consider taking out a 30 year policy. That will protect your children during your primary earning years. By the end of those 30 years your kids will be grown and out of college.

Maybe you're older. Your youngest child is about to graduate from high school and start college. You're worried that you won't be able to pay what that child needs if you die. So take out a 5 year policy. At the end of 5 years they'll be graduated from college and (hopefully) working and supporting themselves.

That flexibility is one of the benefits of term life insurance. You can look ahead at the circumstances of your own life and determine how long your family will be dependent. You can even "ladder" term life insurance just as some people "ladder" bond investments.

Maybe you're most concerned about the next 20 years because your children are all young and there's a big mortgage on your house and you know your spouse couldn't make it without your income. But in 10 years your spouse will be making more money in their career. Five years later one of your children will be out of college. Five years later you'll have the house paid for. Five years later your last child will be out of college and your only concern is the comfort of your spouse. You can safeguard your family by taking out two to four policies with different periods.

You can plan to have the most coverage during the years when your family is most dependent on your income. As their needs will change, you can plan to have some policies expire while one more continues. By matching term policies with the time periods you'll need them, you can get the protection you need for the least money.

Who Can Benefit From Term Life?

Everyone who has loved ones, especially spouse, children and so on, who depend on their income. That includes most all parents and husbands and wives. Term is especially good for people who are already saving and investing money, especially using tax-deferred accounts such as IRAs, 401(k) plans and so on.

Although young, single, childless people are usually told they don't need life insurance because nobody depends on their income . . . it can be an advantage to take out an inexpensive term policy now, while they're still easily insurable.

What if they wait five or ten years until they have a family depending on them . . . but now they have high blood pressure, HIV, diabetes or an injury from a motorcycle accident? Now that they need life insurance -- it could be difficult to get.

The essence of our need for life insurance is that we don't know what the future holds for us. Today we're alive, tomorrow we could die. Today we're young and healthy; tomorrow we'll be older and could come down with a serious disease. We just don't know.

So in exchange for giving up a little money now, a young person could make sure that the children they have not yet conceived will be protected from financial poverty in case of their untimely death.

The sad truth is that although none of us wants to die young, some of us do. If you have loved ones who depend on your income, you owe it to them to make sure you've guaranteed they'll be financially provided for . . . just in case. So, don't wait another day when you can conveniently get free online life insurance quotes today. Here are 3 great resource websites that can get you on the road to a more secure future: US Insurance Online, and Quote Guardian.

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