Term Insurance: A Flexible Family Option

While life insurance is an important aspect of any financial plan, it is most often not purchased until couples become parents or homeowners. Whether you’re buying the policy on yourself, your spouse or your children, you have many different types of term life insurance to choose from. This creates a level of flexibility not seen in the world of permanent insurance. This flexibility not only allows you to create the perfect coverage for your family but also gives you the power to create an affordable policy.

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The Major Types of Term Life Insurance

Level: This is the most common type of term policy issued. With a level term policy you pay a level (unchanging) premium and have a level death benefit for the entire term of the policy. A level term policy could consist of 25 year level term insurance or just 10 years of level term coverage.

Annually Renewable: This type of term will keep a level face value for the term of the policy but the premium will go up every year. Usually this is one of the conversion options when a level policy reaches maturity.

Decreasing: Once referred to as mortgage life insurance, decreasing term insurance has a level premium for the entire term of the policy and a decreasing death benefit that can mirror your decreasing mortgage balance.

Fine print issues to watch out for:

• Make sure you know how long the Term will last before it goes into annually renewable or some other option.
  

• Make sure it isn't an "accident only" policy. Don't be like the client who paid her local credit union for 20 plus years, but when her husband died, she could not get a dime. Many bank and credit union "freebies" are accident only.
  

• Ask if it will be effective immediately. A graded benefit life policy is a policy for people who have severe health issues. No one can be denied. Consequently, it will not pay the face value for the first two or sometimes even three years.
  

• What will happen if you do die within the first two years? All companies have a right to "contestability" during the first two years of any policy. They will pay, but before doing so, they have the right to ask for medical reports and to investigate to find out if you had any pre-existing problem that would have usually resulted in a denial. Find out what kind of process the company undergoes in such circumstances and how long it usually takes.
  

• Will you have the option of converting to whole life? Even if you want a Term policy, don't buy from a company that sells only Terms and has no whole life or universal option available for conversion.
  

• If you choose to renew your policy, will you be able to do so as long as you live? Some Term policies simply expire at age 75 or 80, leaving the senior with nothing for even minimal final expenses. Don't put your family in that situation.

If you acquire a job with a major company, one of the "benefits" will probably be life insurance. When you leave the job, the insurance is also gone, but it's nice to have it at the time. So, life insurance of your own is the last thing to cross your mind. Nevertheless, it's something you need. Term is a cheap—and in most cases the cheapest option, but you need to understand that "not all Terms are created equal." The following basic information will help keep you from making a mistake that could cost you hundreds of dollars and leave you with little or no insurance.