What is term life insurance?
Term life insurance is exactly what the name implies. It’s life insurance at a fixed rate for a predetermined amount of time. Once the term is over you must get further coverage with new conditions and premium rates.
Term life insurance is used to provide financial support for your loved ones in the event of your untimely death. I say untimely because term life insurance is a solution before you reach retirement, not after you’re retired. If you need to provide financial support for your family after you die in retirement a whole life policy with no predefined term is most appropriate.
Term life insurance is quite common because the rates are far cheaper than whole life insurance. Premiums are cheaper because they’re based on how likely it is that the insured will die over the term, not the entire life of the policy owner.
For most people term life insurance is used only until you have sufficient assets to provide for your family financially. Once your estate is built up to a point where your financial goals would be accomplished, term life insurance loses it’s purpose.
Types of term life insurance
Guaranteed level term life insurance. The most common form is guaranteed level term life insurance. Rather than renewing yearly, premiums can be locked in for terms of 10, 15, 20, and even 30 years.
Most guaranteed level term life policies will have some form of option to convert to a universal or whole life policy. This may be a great option for people who have contracted some sort of illness that would cause them not to be able to renew their term life policy. These options usually don’t last through the entire term of the life insurance and are only convertible up to a certain age.
Here are some rates based on a 20-year $500,000 level term policy from USAA.
Annual renewable term life insurance. The ART, or annual renewable term life insurance, is a short term policy which has the option to renew it each year for a period of time. The premiums for ART policies rise each year you decide to renew. This makes annual renewable term life insurance policies rather expensive over time.
Increasing term life insurance. This type of insurance allows you to raise the amount of the death benefit at specific intervals. This may be a great option for younger families now when finances are squeezed tight. Once your income rises you’ll have the ability to increase your coverage.
Decreasing term life insurance. Decreasing term life policies reduce the death benefit as time passes. These may be great options for those who want a specific decreasing debt paid off in the event of their death – like a mortgage.
Convertible term life insurance. This is a type of life insurance that has the option to convert to a whole life policy. You may only want term insurance now, but should you become sick or decide later to extend insurance throughout your lifetime this may be a great option.
Do you need term life insurance?
Many people need life insurance for specific financial planning reasons. My boys are 13 years old and should something happen to me I want their college take care of. I also want the house paid off. I only need this large amount of protection however until they graduate college.
Once they graduate college I want to still protect my wife if something happens to me. She’ll need enough money to live on and retire someday after all! You can back into those calculations with a good financial plan.
Buying term life insurance is generally the most appropriate way to go. It’s cheaper and with great financial planning can cover everything you need for certain periods of time. This helps ensure you’re not overpaying for coverage you don’t really need.
I tried https://www.selectquote.com recently and it wasn’t a bad experience. There are also some great companies who’ll really shop your policies for you like Low Load in Florida. Most insurance companies have access to the same companies however. Your quotes will be very similar if not identical so pick an insurance advisor you really like and trust!