Term insurance is a great choice for those on a limited income, who need insurance coverage for a specified time. It is a temporary coverage option, and generally the premiums are low. It can be purchased for 5, 10, 20, or 30 year increments, and then renewed at a higher rate. Many term policies also offer the provision for conversion to a permanent life insurance plan. Term insurance is much less expensive than whole life insurance, but it does not accumulate cash value.
There are several types of term policies, including straight term (also called level term), decreasing term, and annually renewable term. With straight term, the premiums and the death benefit stay the same throughout the specified time of the policy. With a decreasing term policy, your premiums continue at the same rate, but the death benefit decreases over the life of the policy. With annually renewable term coverage, the death benefit remains the same, but premiums increase each year, when the policy is renewed.
It is wise to make sure that your term policy is convertible to permanent life insurance, as previously mentioned, without having to provide proof of insurability, or having to go through a medical examination to qualify.
And now there is another type of policy that may increase the interest in term life insurance. At face value, it seems almost too good to be true. It’s referred to as Return Of Premium Life Insurance (ROP.) Not only does it pay a death benefit to your dependents if you die within the specified term, but it also offers a return of your premiums if you don’t die. Sounds great, right? But it comes at a cost of 25 to 50 per cent more than regular term life coverage. The insurance company may insist that you continue your coverage for a certain amount of years, in order to recover your premiums.
For many people, term insurance is the most affordable and simplest choice of coverage, and while it does not have the cash value of a whole life policy, they will often choose to use the money (that they would have paid into permanent insurance) for investment purposes. It really all depends on what you can afford, and the needs of your family.