Term life insurance
is the most basic, affordable, and popular option. If the insured dies during the specified term, it pays a death benefit to the listed beneficiary. Policy periods include annual, 5-year, 10-year, 20-year, and the 30-year maximum. Term life is often used to insure against debts that will take 30 years to repay. This makes it a great fit for families with financial burdens.
Although term life is simple at heart, there are a number of variations that can enhance your coverage.
Decreasing term life insurance can help cover loans. It is often used for mortgage, vehicle, and personal loans because the death benefit decreases alongside the loan balance. This saves the policyholder premium dollars over time.Annual renewable term
(ART) life insurance allows you to purchase coverage in one-year increments. Premiums for this short-term policy start low and increase over time. Renewal is optional and you enjoy a period of insurability. This means you do not have to repeat the application and underwriting process every year. ART policies are also subject to maximum age limits by state.
Level term life insurance provides a fixed amount of coverage for a specific length of time. You pay the same premium for a period ranging from 5-30 years. Once you reach the end of your term, ART takes over. This installs much higher premiums that increase annually.
In addition to these variations of term life, riders present additional options. Think of them as add-ons or features. Common riders for term life include:
The additional insured rider allows you to add a spouse or child to your policy.
The child term rider allows you to add all newborn or future children.
The waiver of premium states the insurer will pay your premium if you become disabled.
The accidental death benefit increases the value of the death benefit if you die by accident.
The return of premium refunds you all paid premium if you outlive your policy.
With all these options, term life has its pros and cons. Policyholders enjoy much lower rates, but they can't build cash value over time. Term life rates are much lower, but they only last about seven years on average. Those who elect term life as opposed to more permanent policies typically have a low mortality rate. This influences the ins and outs of the term life.