Term Life Insurance

Term Life Insurance: Not Just a Good Idea

Death and taxes: they're all you can count on, and they'll even try to tax you once you're dead, unless you live in some enlightened land like South Dakota that doesn't have an inheritance tax. As for death, there's little you can do to avoid it besides living a careful, healthy life, and even then you can't account for all the blind bus drivers out there. This being the case, it would be a good idea to make sure you've got a term life insurance policy. The idea is to provide at least enough money to either bury or cremate you, in order to make things easier for your family, but many such policies are sufficiently funded that the people you leave behind will be well taken care of for years afterward.

Unlike some insurance policies, term life insurance is simple and direct: it pays a set benefit upon the holder's death, as long as that death occurs within a specific preset time. If you don't die within that period, the insurance policy expires and you get nothing. The term may last for 5, 10, 15, 20, or 25 years.

Why term life?

Term life insurance is the cheapest form of life insurance, which is great for someone who's either living on limited means or who just needs life insurance temporarily. Obviously, it's a good deal for the insurance company, but it's also a good deal for you. When the term expires, you can sign up again, or go for another type of life insurance that suits you better. Some term life insurance policies are renewable, though many are not; some can even be converted to a permanent life insurance policy, if you're willing to pay the extra fees. Again, this is advantageous to you, because you can usually switch no matter the state of your health.

Term life insurance is not only inexpensive, it can cover your family for certain medium-term expenses that might otherwise burden them if you were to pass away. Car loan payments and home mortgages, which only seem to last forever, are prime examples of such costs. If you were to die, your term life insurance could help pay off your mortgage so your family needn't worry about losing your home.

Three choices

Term life insurance comes in three basic flavors: Level, Decreasing, and Increasing. Level term life insurance offers a death benefit that stays the same throughout the term. Premiums remain "level" as well. With Decreasing term life insurance, the benefit may decrease a steady amount per year until it drops to zero and expires, even as the premiums remain the same. In the Increasing version, the benefit increases a set amount every year -- say, 5%. Premiums will also typically increase.

Although term life insurance is generally a good deal, it's not for everyone. For example, you'll never be able to pull cash value out of it as you can with some policies. Also, it's liable to get more and more expensive as you get older, and there may be a time when it simply becomes too expensive to keep paying for. Before you sign a term life insurance agreement for any length of term, be sure you understand what you're doing, where it's taking you, and whether you've made the best decision for your lifestyle.

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