The public is besieged by commercials and print media with a multitude of companies telling them what life insurance to buy. As an insurance professional, I am often asked the question, “What is term life insurance and why is it different than whole life insurance?” There is a big difference, depending on what your financial situation is and what you hope to do with your money before or after you grow old.
It is a conundrum for many individuals who consider term life. On one hand, the terms are cheap, on the other; your policy will expire or change if you don’t die. Fun huh?
Term life basics
No one likes to talk about death, but when you have a family to consider, are young and healthy, and have many years of work ahead of you; term life may be for you. A policy holder will pay a fixed amount of premiums for a certain amount of years and if you survive the term, however many years that may be, your policy may change. Your health will be reevaluated and because you will be older, your premium per month will increase or may stay the same. This depends on which type of term you choose.
What happens when your term life expires?
If you are relatively healthy after your term life expires, you can either choose to continue the term with a higher premium, or you may choose to switch to a whole or universal life policy. It depends on the age and health of the policyholder, as well as what type of term life insurance is chosen. Different companies offer different term products, so pay attention to what a company offers; don’t sign a policy until your insurance agent has explained every detail.
More than one type of term policy
Your insurance provider may give you different choices of what term life you can apply for. One is a “return of premium” policy, which means you can cash out most of what you’ve paid in during the length of the policy if it is outlived. Or, there is the “level term” policy. A level term means that whether a consumer has a policy that has a length of 10, 20, or even 30 years, one is able to keep their monthly premium intact, providing health hasn’t declined considerably. A company may offer a convertible policy change once the policy holder reaches a certain age, when health issues or age becomes a factor.
No matter what type of term life you choose, remember to choose wisely and ask your life insurance agent about any questions you may have before signing on the dotted line.