Term life insurance is a policy which provides death benefit coverage for a set number of years. The policy accepts premium payments in exchange for a death benefit. This death benefit is guaranteed for the life of the policy. When the policy expires, you may renew it up to a certain age limit.
There are two types of term life insurance. The first type is annual renewable term life. This policy renews every year; each year, your premium increases. Level term life increases the premium over the annual renewable term, and levels out the payment for a set number of years. After the term expires, you must renew your policy.
States limit the number of times you may renew your policy. Your state's age limit may be different from that of other states. It is common for states to cap the maximum age for term life at 80 or 85, but again, this depends on your state. After this maximum age, you cannot buy term life any longer.
If you own a term policy, many companies allow you to convert the term policy to a permanent policy. Doing this allows you to preserve your life insurance coverage. Your family gets the benefit of having enough insurance to pay for your final expenses and any outstanding debts when you die in your old age.
If you renew your term life up to the maximum insurable age, premiums will be very expensive. Converting at this age will likely result in equally high premium payments. You may not be able to afford the insurance you need and may leave your spouse or children with expenses they cannot easily pay for when you die. Additionally, term life insurance offers so surrender options. This means you pay in all of those premiums to the policy and never see a return on that money. When the policy terminates, you'll be left with nothing. In essence, the older you become, the less sensible this policy type becomes.
- "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994