Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active - or in force - then a death benefit will be paid.
Term insurance is initially much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value.
There are many different types of term insurance policies available. Many policies offer level premiums for the duration of the policy, such as 10, 20, or 30 years. These are often referred to as "level term" policies.
While premiums for these level term policies remain level for a set number of years, after this time period the premium increases significantly, making the policy cost prohibitive.
Most term policies have a built-in privilege to convert to a permanent policy regardless of any changes in the insured's health.
The Advisor Insight
Term insurance has two features that make it attractive:
- A guarantee on the premium and survivor benefit for a defined amount of years, depending on the company, age of the insured and other factors.
- No capability of accumulating cash inside the policy. You can't pay an extra premium to get extra benefit. You can’t transfer money from other accounts into the policy. The carrier will not pay dividends or apply interest to your account.
This product is ideal for covering yourself for a single need, for a specific amount of time. An example is indemnifying a mortgage or business loan.
The kicker is that if you outlive this time and still need coverage, the price of term insurance typically increases astronomically after the guarantee period.
The firm of Steven H. Kobrin, LUTCF
Fair Lawn, NJ