Term Life
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| Term Life Insurance in the United States
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| Term Life insurance covers the insured for what is usually a relatively short period of time. All of the money from the premium is used to pay for the insurance itself. Therefore, at the end of each term, the policy must be renewed. The policy does not accrue equity for the insured. There is no penalty for not renewing a term life policy because the insurance company is not in possession of an asset. If the insured dies during the term of the policy, the policy pays off at its face value. Term life policies are generally tax-free and may even allow for a partial payout upon diagnosis of a terminal disease.
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| For young people, term life insurance is often the cheapest option. However, the price will increase as you age because health problems show up over time, and, for the simple reason that the older you are, the higher the chance that the insurance company will have to pay a settlement. Another downside is that if health problems materialize and your policy is non-renewable, your premiums may increase or you may no longer qualify for insurance. This problem can sometimes be avoided by paying higher rates for renewable term life, allowing you to renew the same policy without re-qualifying. A policy may also be designated convertible, which means that the insured can convert the policy to permanent life at a later time.
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| Another choice related to term life is the option for level or decreasing term. Level term pays the same amount of money upon death at any point during the policy. Decreasing term pays less and less as the term progresses. The latter is most effective for protection against a mortgage or any other steadily decreasing financial obligation. Level term life is not to be confused with level premium term life, which specifies that premiums will not increase over the course of the term in exchange for slightly higher premiums early in the term.
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| People choose term life when they need insurance for only a short period of time, or they need insurance, but cannot afford the premiums associated with permanent insurance. Some people choose term life and then invest the difference between the premium and a permanent life premium on their own. These people are confident that their investments will outperform those of the insurance company.
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