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TERM
INSURANCE
Term insurance provides protection for a specified period of time. This
period could be as short as one year or provide coverage for a specific number
of years such as 5, 10, 20 years or to a specified age as high as 80. Policies
are sold with various premium guarantees. The longer the guarantee, the higher
the initial premium. If you die during the term period, the company will pay the
face amount of the policy to your beneficiary. If you live beyond the term
period you had selected, no benefit is payable. As a rule, term policies offer a
death benefit with no savings element or cash value.
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Premiums are locked in for the
specified period of time under the policy terms. The premiums you pay for term
insurance are lower at the earlier ages as compared with the premiums you pay
for permanent insurance, but term rates rise as you grow older. Term plans may
be "convertible" to a permanent plan of insurance. The coverage can be
"level" providing the same benefit until the policy expires or you can
have "decreasing" coverage during the term period with the premiums
remaining the same. If you do not pay the premium for your term insurance
policy, it will generally lapse without cash value, as compared to a permanent
type of policy that has a cash value component. Currently
term insurance rates
are very competitive and among the lowest historically experienced.
It should be noted that it is a
widely held belief that term insurance is the least expensive pure life
insurance coverage available. One needs to review the policy terms carefully to
decide which term life options are suitable to meet your particular
circumstances.
Types of Term Insurance:
Renewable Term.
Renewable term plans give you the right to renew for another period when a term
ends, regardless of the state of your health. With each new term the premium is
increased. The right to renew the policy without evidence of insurability is an
important advantage to you. Otherwise, the risk you take is that your health may
deteriorate and you may be unable to obtain a policy at the same rates or even
at all, leaving you and your beneficiaries without coverage.
Convertible Term
Convertible term policies often permit you to exchange the policy for a
permanent plan. You must exercise this option during the conversion period. The
length of the conversion period will vary depending on the type of term policy
purchased. If you convert within the prescribed period, you are not required to
give any information about your health. The premium rate you pay on conversion
is usually based on your "current attained age", which is your age on
the conversion date. This type of policy often provides the maximum protection
with the smallest amount of cash outlay.
Level or Decreasing Term
Under a level term policy the face amount of the policy remains the same for the
entire period. With decreasing term the face amount reduces over the period. The
premium stays the same each year. Often such policies are sold as mortgage
protection with the amount of insurance decreasing as the balance of the
mortgage decreases. If the insured dies the proceeds of the policy can be used
to pay off the mortgage.
Adjustable Premium
Traditionally, insurers have not had the right to change premiums after the
policy is sold. Since such policies may continue for many years, insurers must
use conservative mortality, interest and expense rate estimates in the premium
calculation. Adjustable premium insurance, however, allows insurers to offer
insurance at lower "current" premiums based upon less conservative
assumptions with the right to change these premiums in the future. The premium,
however, can never be more than the maximum guaranteed premiums stated in the
policy.
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