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 for a specific time period. If you have kept up with the payments (premiums) called for in the agreement, your survivors will be paid the agreed-upon amount if you die within the covered time period.

Term insurance is the best deal for most consumers. Many families need coverage most while they are earning a living, paying a mortgage, raising children, etc. If you buy a 20-year, 25-year or 30-year policy while in your 20s and 30s, the premiums are much lower than for the other main type of life insurance, called "cash-value." If you want to purchase a new term life insurance policy after yours expires, you should expect premiums to be significantly higher because you are older. But the idea behind term insurance is that, as your children grow up and your assets (the value of your savings, investments, home, autos, etc.) increase and you eventually retire, you can reduce or cancel your coverage.

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 the entire term (typically five to 30 years), then increases sharply if you have to renew at a higher age.
  • Either type may be guaranteed (or automatic-renewable), meaning you can't be denied the opportunity to renew your coverage—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 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.

Learn more on the NerdWallet site. 




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