The easiest policy to understand is the term life insurance
policy. It is also the cheapest. Term life insurance provides you
with a benefit amount in exchange for the payment of your premiums.
For example, if you take out a term life policy for $100,000, your
premium may be around $200 a year. Whether you pass away in the
first year of the term coverage or the 20th year of the policy, your
survivors will receive a death benefit of $100,000.
Term life insurance is available for set periods of time that
range from 10 to 30 years. During this time, your premiums will not
increase. As long as you pay the premium, you have life insurance.
Term life insurance is a popular insurance choice, because it
features longer rate guarantee periods and premiums are recently
quite low. For example, a healthy, non-smoking 28 year old male can
purchase a $500,000 policy for a 20-year guaranteed term for only
$360 per year in premiums. The more you insurance you take out, the
cheaper it becomes. You can take out a $1 million policy for around
$600 a year, less than twice the cost of the $500,000 coverage.
Choosing the rate guarantee period is a simple process. Simply
look at the period of time you will need coverage. For example, if
your children are young and you have a long mortgage to pay off, you
might choose a 30-year term life. If you are older, your children
are in college and your home is almost paid off, a 10-year term
might fit you better.
With term life, you have two benefits that are of great
consequence. You have a guaranteed renewal and guaranteed
A guaranteed renewal grants you the right to continue coverage
beyond the initial rate guarantee period without a medical exam.
Before you buy a term life policy, you should confirm that the
policy contains this option. If you become ill or uninsurable
towards the end of your term life rate guarantee period, this could
be a life saver.
For example, you've paid $800 a year on a $500,000, 20-year term
life insurance policy. Towards the end of the 20 years, you develop
cancer. If you want to continue coverage, the guaranteed renewable
clause will allow you to continue coverage beyond 20 years on an
annual renewable basis without a medical exam.
When you use the annual renewable clause, your premium will go up
drastically. You could be looking at $8,000 to $11,000 a year. Weigh
the options carefully. The premiums may not be too high if you are
very sick and in need of coverage.
Guaranteed convertibility gives you the right to convert your
coverage to a cash value policy that the company offers. You are
allowed the current rates without having to take a physical exam.
This is a good option if you plan to switch to a cash value life
insurance policy in the future.