advantages of term life insurance

Shopping for life insurance is a tedious and confusing undertaking. It is a task that many of us would like to avoid if it were not so necessary. Just as you finally decide which policy plan might best suit your needs, you then have to worry about your premiums increasing with each passing year as your risk of death increases with age. To simplify your venture in insurance shopping, many insurance companies offer what is known as “level term” life insurance.

Level term life insurance has premiums that are designed to remain the same for a period of 5, 10, 15, 20, 25, or even 30 years. This type of term life insurance is extremely popular because it is comparatively inexpensive while providing short to long-term coverage. This is especially ideal for individuals who are just starting out in the workforce.

How the Premiums Work

As noted, the premium paid for level term life insurance are the same each year. Payments are based on the total cost of each year's annual renewable term rates. The carrier then makes a time value of money adjustment (the “older,” more expensive to insure years are averaged into the premium). Therefore, the longer the term the premium is level (or remains the same), the higher the cost to the insured.

Most level term programs include a renewal option and allow the insured to renew for a maximum guaranteed rate if the insured period needs to be extended. This clause is typically only revoked if the health of the insured deteriorates significantly during the term.

What is the Catch?

Conversion Policies for Term Life Insurance

In the case where you may become ineligible for level term life insurance renewal or if you decide that you would prefer to take advantage of the benefits offered by permanent life insurance programs, many term policies offer a conversion privilege for a certain period of years. During the allotted time period, the insured is allowed to convert to a permanent policy regardless of their health condition at the time of conversion. Purchasing a plan with a conversion policy is especially beneficial for young families. They are able to obtain the necessary coverage immediately at an inexpensive rate and then convert to take advantage of permanent policies as their income and assets increases through the years.

Conversions are usually implemented without proof of insurability. Some carriers will allow conversions until the age of 75. The coverage would be equal or lesser to the term face value already in place. It is a good idea to compare various term life insurance policies to see which carriers offer conversions and the stipulations attached to their policies.