Term Life Insurance
What term does
Term insurance provides pure protection for a specified period with no cash value. It is the least expensive way to buy a large death benefit for a defined need such as a mortgage or income replacement.
Types
- Level term: level premium and level face amount for the term.
- Decreasing term: face amount decreases over time; premium stays level.
- Increasing term: face amount increases; used with cost-of-living riders.
- Renewable term: can be renewed without evidence of insurability, usually at a higher premium.
- Convertible term: can be converted to permanent coverage without evidence of insurability.
- Return of premium term: refunds premiums if the insured survives the term.
Traps
- Renewable means no new underwriting, not the same premium.
- Convertible means no new underwriting, but the premium reflects the permanent product's rate.
- Decreasing term has a level premium but a shrinking benefit - good for declining debts.
- Term does not accumulate cash value; any "cash value" answer is wrong.
Rule of thumb
Match the term to the need: level term for level obligations, decreasing term for a mortgage, convertible when future insurability is a concern.