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What is Term life insurance

 


Term life insurance: Term life insurance locks in level premiums for a specific period, such as 10, 20, or 30 years. You can generally renew term life after the level term period, but your rates will no longer be locked in. Rates will go up every year you renew and could quickly become too expensive. People buying term life insurance must decide on the length of the policy and the coverage amount.

Term life insurance policies come in multiple types:

Level term: A level term life insurance policy has the same premiums and death benefits throughout the initial term length of the policy. After the level term period, rates will go up every year if you renew. Alternatively, you could get quotes for a new policy if you still need life insurance.

Annual renewable term: A person with an annually renewable term life policy must renew it each year from the start, and will see higher rates as they age.

Decreasing term: Premiums stay consistent with a decreasing term policy but the death benefit decreases during the policy’s term. One type of decreasing term life policy is mortgage life insurance. The death benefit drops as you pay off your mortgage, though the premiums stay the same. Return of premium term life: A return of premium term life insurance policy returns your premiums if you outlive the policy. This policy type is much more expensive than other types of term life.

Benefits of term life insurance

  • More affordable than whole life insurance.
  • Premiums stay the same during the level term period.
  • Guaranteed death benefit amount.
  • Can be a good choice if you need a policy specifically to cover your income-earning years.
  • Can be a good fit if you primarily want to cover specific financial concerns that have a timeline, such as a mortgage.
  • You can often convert term life to a permanent policy.

Drawbacks of term life

  • If you still need life insurance after the level term period, renewal rates might be unaffordable.
  • No cash value that you can tap into while you’re alive.

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