Term Insurance

Term insurance is the most economical form of coverage when the need is temporary.  It provides pure insurance coverage without cash value buildup.  Because premiums usually increase with attained age, it becomes less economical when the need extends to older ages.  An exception is when the need is permanent (long term), but the insured’s cash flow does not allow for the acquisition of a permanent policy.  In this case, a term policy could be procured with the intention of converting it to a permanent policy when cash flow permits. 

Term insurance is often sold as a commodity for the lowest available premium, because unlike other types of life insurance, it has a relatively simple product structure.  However, renewability and convertibility provisions, as well as future premium patterns are often more important factors than the initial premium. 

In the past, most term policies had premiums that increased annually.  Now term policies are available with guaranteed level premiums for 5, 10, 15, 20, or sometimes more years.  Many of these level premium policies have recently been repriced and as a result are quite competitive. 

Term policies often provide the right to convert to a permanent policy during a specified portion of the term period, often expressed in number of years or to a certain age.  Because this right is contractual, i.e., evidence of insurability need not be provided, this provision can be invaluable to individual who would otherwise be uninsurable. 

The above characteristics of premium, and premium structure after the guarantee period, renewability, convertibility, along with the company’s financial ratings, should be reviewed before deciding which term policy to procure.

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