Term insurance is a type of life insurance policy that provides life insurance coverage with a level premium for a certain period of time. The common level premium terms are 10 years, 15 years, 20 years, and 30 years.
You can buy term insurance for a smaller premium than permanent insurance. But, after the level period, the term insurance premium will increase, eventually becoming very expensive. This is why term insurance is thought of as temporary insurance.
5 Ways to Find Lower Term Life Insurance Rates
If you have a temporary need for life insurance such as a home mortgage that will be paid off at a set time, term insurance may be ideal.
If you have a permanent need for life insurance such as for estate settlement, term insurance is probably not the best fit.
Most term insurance is convertible
However, most term policies are convertible; you can exchange them for permanent insurance following the guidelines laid out in the policy. The conversion from term insurance to permanent insurance does not depend on good health at the time of conversion. People sometimes buy term insurance for permanent needs, planning to convert to permanent insurance at a later date.
Term insurance does not build cash value unless you have purchased a return of premium policy.
Term insurance riders
Term Insurance Riders and Endorsements that may be available:
- Accelerated Benefit Endorsement: This endorsement gives you early access to part of the specified death benefit if you become terminally ill or are confined to a nursing home.
- Waiver of Premium Rider: Premiums are waived if you are totally disabled. The benefit starts when you have been totally disabled for 6 months.
- Children’s Insurance Rider: This rider provides term insurance on your children, usually until they reach age 23 or 25.
- Return of Premium Rider: With this rider your term insurance builds cash value. At the end of the level term (20 or 30 years) you will receive the cash value which is equal to the premiums paid, or you may elect to have a smaller paid up life insurance policy. If you surrender your policy before the end of the level term period, you may receive a percentage of premiums paid.
The rules and definitions associated with riders and endorsements vary from company to company. Before you buy term insurance, be certain you understand the provisions of the policy you are purchasing.