Term life insurance is considered to be the most basic, pure form of life insurance coverage available. This is because term life provides death benefit protection, without any cash value or investment build-up. Because of this, term life insurance is typically a more affordable form of coverage – mainly if you are young and in relatively good health at the time you apply for it.
As its name implies, term life insurance is purchased for a certain amount of time, or “term.” These time frames can be as short as just one year, or as long as thirty years…or more.
Often, the amount of the death benefit and the amount of the premium charged will remain level throughout the entire length of the coverage term.
Just like with other types of life insurance coverage, the death benefit from a term life policy will payout to a named beneficiary (or beneficiaries) if the insured passes away while the policy is still in force. These benefits are received income tax-free.
What happens at the end of my term?
Once the term of coverage has ended, you may have to purchase another life insurance policy if you still want coverage. This policy and its corresponding premium would be based on your then-current age and health condition. So, you will be required to pay more in premium costs, provided that you are still insurable.
Term Conversion Options
However, depending on the specific term life insurance policy that you have, it could be possible for you to “convert” the plan into a permanent life insurance policy. In doing so, you can lock into coverage for the remainder of your life, provided that the premium is paid.
The most significant benefit of a conversion option in a term policy is that you do not have to prove insurability to convert your term to a permanent policy. So if you were to get sick or maybe even get diagnosed with a terminal illness, then you can convert your term policy to a permanent plan to make sure you do not get in a situation where your term policy could expire.
Advantages and disadvantages of term life
There are a number of advantages to purchasing term life insurance. The biggest advantage with term life is typically the most affordable type of life insurance on the market today. Due to its simplicity (i.e., death benefit only coverage), you don’t have to pay for a long list of other “bells and whistles” – which can be especially beneficial if you do not need them.
Term life insurance can offer a great way to cover the unpaid balance of a mortgage, as well as other “temporary” needs – and it can do so at an affordable premium cost.
While many nice features are associated with term life insurance, it isn’t right for everyone. For instance, many people like the savings or investment component that is associated with permanent life insurance policies.
Also, there are some cases where an individual would prefer to lock in his or her coverage, regardless of whether they contract an adverse health condition in the future (which in turn could make them uninsurable).
|Term Insurance Advantage
||Term Insurance Disadvantages
||Coverage ends at a certain date
|High coverage amount
||No cash value or “equity” build up
||Expensive at older ages
|Death benefit is income tax-free
||Not good for longer term coverage needs
|May be convertible
||Could leave an insured uncovered