Dollar for dollar, term life insurance is a great value with highly competitive offerings, so it pays to shop around. Depending on the carrier, there are even types of term life with no medical exam. When looking for term life insurance quotes online, here are some things to consider before you buy a term life policy.
There are five basic types of term life insurance:
- Renewal – this type of term life policy stays in force for a specific period of time. Typically, these types of policy are sold in one- or five-year units. They can usually be renewed at the end of each term without the need for you to take a life insurance health exam or provide any proof that you’re healthy. Be aware that the premium will most likely be higher on renewal than what you paid during the initial period.
- Level Term – this type of term life policy gives you a set amount of coverage. Your premiums won’t fluctuate turn the duration of the term, which are typically sold in five- and 10-year increments such as 10-year, 15-year, 20-year, 25-year and 30-year. Clearly the younger you are, the more it behooves you to purchase a long-term policy at a low annual rate.
- Decreasing Term – this type of policy sets the term up to a specific age – typically 65. Your premiums don’t fluctuate during the life of the policy, however your benefits decrease as the policy ages. Not a bad choice if you want affordable coverage during your prime earning years, but presumably won’t need it as your status in life changes (e.g., the kids are grown and through college, your home is paid for, you have other investments to cover your spouse when you die).
- Convertible Term – Another type of policy that sets its term to a specified age, convertible term lets you convert your term life insurance to a more permanent type of policy such as whole life. Often you can convert your life insurance with no medical exam, however be prepared for significantly higher premiums in exchange for the privilege.
- Return of Premium – Return of Premium or ROP is a fairly new feature that may be offered in conjunction with term life coverage. It actually allows for the refund of your premium if no death benefit was paid out during the policy’s term, but with strict conditions attached. Predictably, the premiums are going to be much steeper than level or decreasing term life; and many insurers require that you keep the policy through the end of the term. Drop the policy early, and you lose part or all of the premium benefit.
One more thing to know about term life insurance: individual (versus employer-provided) term policies can only be canceled for non-payment of premium. Many policies include a grace period – usually 31 days. Miss a premium payment and your policy remains in force during the grace period. As always, you are advised to read the conditions of your specific policy, particularly the termination provisions.