Term life insurance, the most affordable type of insurance when initially purchased, is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. Terms are usually 10 to 30 years, with 20 being the most common. Some policies can be automatically renewed at the end of the coverage period, and some can be converted to permanent insurance without need for a medical exam. Term conversions are common for those people whose health has deteriorated during the term and may otherwise be uninsurable.
- When should I consider buying a term life insurance policy? Term insurance is generally used when the need for death benefit protection is temporary or if you are unable to afford the premiums of a permanent life insurance policy. Term life insurance typically provides for the largest immediate death benefit amount for each premium dollar. It is appropriate if you are seeking protection for a specific need that will end at a future date such as to pay for a child’s college education expenses, to repay a loan or to replace income should death occur prior to retirement.
- How does term life insurance differ from permanent life insurance? Permanent life insurance is intended to provide protection for your entire life. Generally, the premiums for permanent insurance are higher at least initially than for the same amount of term insurance. A portion of the permanent life insurance premium is used to build-up a cash value in the policy. The cash value can be used in a number of different ways including allowing you to take out a loan against the cash value. Term insurance, as described in question one, provides protection only for a specified period of time and typically does not build up any cash value.
- What is a “Return of Premium” feature? The return of premium feature will generally provide for a refund of all or some of the premiums you paid for the term insurance at the end of a level term period or at end of the term coverage period if no death benefit was paid out during that period. The parameters of the return of premium feature will vary depending on the term life insurance policy you purchase. The return of premium feature can be offered by a separate rider to the term life policy for an additional cost. The return of premium feature may also be a provision within the term life policy. Term life policies with this feature will be more expensive than a term life policy that does not offer this feature. You should consider whether the return of premium benefit is worth the extra cost.
- What is “convertible” term life insurance? Some term life insurance policies are described as being “convertible”. A conversion provision allows the owner of the term life policy to convert from the term life insurance policy to a permanent life insurance policy during a specified period of time without having to show that the insured is in good health. The conversion period is shorter than the duration of the term insurance coverage.
- I bought life insurance last week, and now I’ve decided I do not want it. What can I do? All life insurance policies come with a “Free Look” period. In most cases the free look period is for 30 days. You can contact the insurance company in writing and notify them that you want to cancel your policy. They should return all of the premiums you have paid. Review the cancellation clause and Free Look period clause in your life insurance policy for the right course of action to take. Or, contact your life insurance company by phone for instructions.
- Does life insurance pay benefits for any type of death? No. Usually suicide is not covered by your policy if it occurs within 2 years of policy inception. In some states this requirement may only be one year.
- If I have an existing medical condition, will I be able to get life insurance? Yes. Some life insurance companies specialize in finding coverage for people with existing medical conditions. It’s best to request quotes from a few quote providers, though, because your rates may vary dramatically from one insurer to another. If you are unable to get accepted, you may want to consider Guaranteed Acceptance Life Insurance.
- Should I Buy Life Insurance from My Employer? While purchasing life insurance through your employer may be convenient, the option is usually not ideal. Depending upon your specific situation, there are several reasons why group life insurance through an employer is not as good as an individual policy: Almost all life insurance policies that are available through an employer are “not – portable.” This means the policies are only valid so long as you remain employed with the employer who provided the policy. If you are laid-off, fired or leave that employer to take a job elsewhere, your policy immediately becomes null and void, so you would have no life insurance coverage for your family if that was your only life insurance policy in force