Term Life

couple and child

I think I’ll just rent for now.

Term Life insurance is like renting your first apartment.  It does the job and is affordable, but it’s only temporary.  Term life policies are designed to cover temporary debts; mortgage and young dependents as an example.  It is typically purchased by young families starting out who want to cover mortgage debt and provide for a spouse and young children.  It is the most affordable type of life insurance on the market.

What does “Term” mean?

“Term” refers to the term of the premium schedule.  A term 10 policy will set the premium at a person’s age at the time they purchase the policy, and it won’t change for 10 years.  Car insurance rates are set annually, term life rates are set in 10, 20, and sometimes 30 year terms.

Does that mean I’m committed for 10 years?

No, you can cancel the policy whenever you want, just like car insurance.  What it means is that the insurance company can’t send you a letter next year increasing your premiums (unlike car insurance).  They can only increase your premiums every 10, 20, or 30 years; depending on the term you have.

How will I know how much I will have to pay 10 years from now?

Most term policies are “guaranteed renewable”.  That means the rate in 10 years is listed in your policy when you purchase it.  This rate is called the “renewal premium”.

What if I don’t want to pay the increased premium at renewal in 10 years?

At renewal time, or anytime, for that matter; as the consumer you have the right to shop around.  Most people that are still in good health when their term policies renew, can get a similar policy for about half the price of the renewal premium.

Does term insurance ever expire?

Yes, term policies will renew according to the premium schedule, (i.e every 10, 20 or 30 years), but eventually they expire; usually age 75 or 80.

What if I die at age 81?

That is why term policies are only used for temporary purposes.  If someone needs coverage beyond age 75, they need to purchase a Whole Life policy.

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