Mike’s Life Insurance Advice

Hi Audrey,

You’re right.  There are so many different kinds of policies available that it can be hard to make sense of it all.  There’s term, universal, variable and whole life policies and each has its benefits and drawbacks.

As you probably know, one of the most affordable types of life insurance is term life insurance.  When you buy term insurance you’re purchasing it for a specific term, or length of time.  And you pay your premiums for the entire term of the contract.  Once the term is up you no longer have a death benefit.

The premiums simply pay to keep the policy going.  There isn’t any cash value.

The Advantages of Term Life Insurance

The biggest advantage of term policies are that they are a lot more affordable than variable, universal, or whole life policies.  You can also zero in on the amount of time you want to be covered.  For example, if you only want to have life insurance while there’s a mortgage to pay or while your dependents are living at home, you can get a policy for 10, 15,20, 25, or 30 years.

The Disadvantages of Term Life

Because all of your premiums are used to keep the policy going there is no cash value component, no interest is earned, and no money accumulates.  Also you may decide that you want to increase the length of your coverage when it expires.  If that happens you might have to undergo proof of insurability.  If you’re not denied the additional coverage you want you will probably need to renew it at substantially higher premiums.

If you feel term insurance is an option you’d like to look at, you’ve got to know that even term life is broken down into a number of different categories.  So let’s take a look at the different types of term life insurance policies so that you can decide if one of these is right for you.

Level Term Insurance

These policies are usually for ten, twenty, or thirty years.  Both your death benefit and your premium stay the same for the entire term of your policy.

Annual Renewable Term

You must renew an annual renewable term policy yearly.  And most years the premiums will increase. But the death benefit will stay the same for the entire term of the policy.  Although the initial premium is usually less than for a level term policy, for the most part it will cost more over the term of the policy.

Decreasing Term

With this policy your premiums stay the same buy the death benefit goes down every year.  The policy ends once your death benefit are fully liquidated.