Term Insurance

LOOKING FOR LOW-COST insurance coverage that will deliver a big payout to your family if you die prematurely? Term insurance, which provides a death benefit and nothing more, will likely be your best bet.

When you first buy, you typically need to take a medical exam. Many term policies are convertible into permanent life insurance. Most are one of two types: annual renewable term or level-premium term.

Level-term policies are priced so you pay the same premium every year for, say, 10, 15 or 20 years. You may be able to continue coverage beyond the end of the policy’s term, but another medical exam might be required. If your health has deteriorated, that could create serious problems. To sidestep this issue, before you first purchase a policy, think carefully about how long you’ll need coverage for. Don’t skimp by buying insurance with a shorter term than you really need. If your coverage needs decline, you can always call the insurer and ask to reduce the policy’s size, which should result in a roughly proportional decrease in premiums.

Meanwhile, with annual renewable term, the premium rises each year as you grow older. But these policies can give you more flexibility. They may be renewable up until age 95, with no further medical exam necessary.

Even if you can renew your term insurance late in life, you probably won’t want to—because at that point the premiums can be exorbitant. But by then, you will likely no longer need coverage because your children will be out of the house, and you and your spouse should have enough socked away for retirement.

You might also hear about a third type of term policy: return-of-premium term life insurance. With these policies, if you live until the end of the term—which might be 20 or 30 years—some or all of your premiums are returned to you. That feature, however, means that the premiums on these policies are significantly higher than those on annual renewable term or level-premium term.

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