Help Desk FAQ

Life insurance

 

What is term life insurance?

Term insurance is a basic "no frills" form of life insurance. You purchase a specific amount of coverage by signing a contract for a specific time period. If you have kept up with the monthly payments (premiums) called for in the contract, your survivors will be paid the agreed-upon amount if you die within this time period.

Term insurance is the best deal for most consumers. The premiums for policy-holders in their 20s and 30s are much less expensive than for another common type of life insurance called "cash-value" (see below). Many families need coverage most while they are raising young children. Term life insurance premiums keep increasing as you age, but as your children grow up and your assets (the value of your savings, investments, home, autos, etc.) increase, you can reduce your coverage.

Term policies must be renewed when each term ends. Before buying a term policy, ask about renewal provisions. These are some typical options:

  • Annual-renewable—the premiums go up each year.
  • Level term (also called straight term)—the premium stays the same for 5, 10, 15 or 20 years, then increases sharply.
  • Either type may be guaranteed (or automatic-renewable)—you'll pay more for this feature. Other options on term life insurance policies may include:
    • Re-entry. This feature requires a lower premium than an automatically renewable policy. You can renew at the same low rate offered to new customers—but you'll have to pass a physical. If you've developed any health problems, your premium could go up and cost more than an automatic-renewable policy.
    • Convertible term. You have the option to convert to a cash-value policy in later years. Consider this if you want cash-value life insurance and can't afford it now, but expect to be able to in the future.
 

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