What is Term Life Insurance?
Term life insurance is insurance that pays a specified amount upon the death of the insured. By its nature, a term life insurance policy is temporary. Term life policies are written to provide coverage for a specified number of years, usually from 1 year to 20 years. When term life insurance is offered through an employer, the term is the duration of employment. Additionally, term life policies do not build equity such as cash value or dividends as many permanent types of life insurance policies do. These two factors, a defined length of coverage time and lack of equity, often serve to make term life insurance policies an attractive and affordable option.
While cost savings are a significant consideration and can often allow younger couples or individuals who are just starting out to purchase protection they may not otherwise be able to afford, it is only one of the many benefits provided by term life insurance.
A Hidden Benefit
One of the most important and often overlooked elements of term life insurance is the ability to protect the insurability of the individual. Most term life insurance policies contain a provision that allows the insured, at any point in the policy term, to convert the policy to another type which the insured can carry for a longer period (often to age 65 or beyond). The most important part of the conversion clause may be that the policy can be converted without “evidence of insurability”. This means that regardless of what changes may have evolved in your health, you will still be able to obtain a new policy. The new policy is also issued at the same rating class (preferred, select, etc) as the existing policy.
Protecting your insurability can also be a critical factor as you near the end of your term policy. Many term policies are “renewable”, meaning they can be renewed for an additional term. Here again, this can be done without evidence of insurability. In renewing a policy, the amount of premium is adjusted to reflect your current age category.
Affordable Peace of Mind
Simply put, in addition to insuring your life in the event of your death, you are also insuring your ability to buy permanent life insurance in the event your health declines as a result of an accident or serious illness. It’s built-in peace of mind.
While term life insurance may not prove to be the long-term solution you are looking for in your insurance portfolio, it can be a good bridge to get you to where you are going in an affordable manner. When considering the various benefits offered by a term life policy be sure to look beyond the basic premium and take into consideration the protection of your insurability as a key component.