| If you need life insurance for a specific period of time, term insurance should be considered. It provides insurance protection from one to 30 years and is generally the least expensive form of life insurance. If you die during the term of the policy, your beneficiary will be paid the amount of money specified in the policy. If you are still alive at the end of the term, coverage stops unless the policy is renewed. Unlike permanent insurance, you will not build equity in the form of cash savings.
Term insurance can be a useful financial tool for:
- Those who need a large amount of life insurance, but have a limited budget, such as a young couple, with children.
- Covering debts that will disappear in time, such as a mortgage or car loan.
- Business owners who want to cover the life of a key employee for a specific number of years.
Keep in mind that premiums are lowest when you are young and increase upon renewal as you age. Some term insurance policies can be renewed when the policy ends, but the premium will generally increase. Many policies require a medical examination at renewal to qualify for the lowest rates. Before deciding on a policy from a specific company, find out what their requirements are. Also, see if you would be able to convert the term policy to a permanent policy later on.
If you think your financial needs will change, you may also want to look into “convertible” term policies. These allow you to convert to permanent insurance without a medical examination in exchange for higher premiums.
Source: Insurance Information Institute, Inc. www.iii.org
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