Understanding Term Life Insurance

Term policies are the simplest to get and require the lowest premium.  You simply apply and pay the premium (usually in small monthly payments), which is a reasonable amount, depending on your age. 

There is no ‘investment’ in cash value other than the value you receive if you die and your payments are up to date.  If you stop paying, your coverage ceases and you get nothing back on your policy. 

You cannot BORROW against your policy, as you can with other types of life insurance policies. 

Term insurance is much cheaper than other types of life insurance, so you can use the money you might have paid in premiums to pay other bills or to invest in your future. 

If you are young and in good health, term life insurance policies are inexpensive and you may want to consider this type of policy as an option.   

Terms vary and run from one, to five, to ten years in length.  During the term of your policy, you pay your premiums and if you die, your beneficiaries receive the face value of your policy. 

But there are some things you should know: 

The payout on the policy may vary as your policy progresses depending on whether you choose a decreasing, level or increasing term life policy. 

When the term of your policy is over, you must decide whether to renew or convert your term life policy. 

If you covert the policy to a policy with cash value, you will need to take a physical exam to determine whether you are in good health.  At that point, you will be older and may have health problems, which will raise your rates.

Term policies do not build cash value or provide tax benefits (for those features, you’ll need a universal or whole life policy) but for someone who is young and in good health and can’t afford high premium payments, term life may be a good way to get a life insurance policy without breaking the bank.