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insurance

Term Insurance

This is as simple as life insurance gets and is the easiest to understand.

This is as simple as life insurance gets and is the easiest to understand. You insure your life for a certain amount of money for a fixed period of time -- one year, five years or more -- and pay an annual premium based on your age and the amount of coverage you're buying. There's nothing fancy about term insurance. It has no savings or investment features built into the rates, making it the purest form of life insurance around and thus the cheapest for a given amount of coverage.

Types of term insurance

Annual-renewable term. You buy a series of one-year policies and the insurance company guarantees you the right to renew the coverage each year without having to undergo an additional medical exam. Your premium rises with each new policy year.

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Guaranteed-level term. Instead of rising each year, premiums start out a little higher but stay level for ten, 15, 20 or 30 years. At the end of the period, you have usually paid less than you would have under an annual-renewable term policy. Insurance companies developed guaranteed-level term policies to discourage customers from hopping from one company to another each year at policy renewal time, chasing the lowest rates.

Declining, decreasing or reducing term. The amount of coverage gradually declines according to a fixed schedule over ten, 15, 20 or more years. Mortgage insurance policies, which pay the loan balance when the policyholder dies, are a common form of decreasing term.

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Convertible term. For a higher premium than regular term, a convertible policy can be rolled into a whole-life, or cash-value, policy without your having to meet medical standards at the time of conversion. Most companies offer policies that are both convertible and renewable up to specified ages or for fixed periods.

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