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CHAPTER 11

TERM INSURANCE

As its name implies, term life insurance provides protection for a specified amount of time. Should the insured (the person whose life it covers) die while the policy is in force, the insurance company will pay out the face amount of the policy. The general standard for a term policy is 10 years. However, you can purchase 1-year term, or in some cases, 5 or more years. Term policies are also available in what- ever face value amounts you deem necessary to cover your needs.

Term is the purest form of insurance in that it provides that the insured’s beneficiary will receive the face value of the policy should the insured die within the specified time frame. There are no extra benefits or investment choices with term, as there are with other types of insurance. What you see is what you get.

Because term is a no-frills insurance policy, it is also the most inexpensive way to insure your life. You know those commercials on television that tout insurance protection for just dollars a month? They usually say, “Tom, a 40-year-old, nonsmoking male can get a policy for just $18 a month.” Those types of policies are term insur- ance. The reason they are so inexpensive is because there is limited risk to the insurance company to actually have to pay out the face value, or death benefit, since the insurance company is only assum- ing the risk for a specified amount of time. In fact, the younger the person, the less expensive protection becomes. However, as a person ages, the cost to insure that person becomes increasingly more expensive. When I refer to term insurance, I am always careful to say that it is “inexpensive” instead of “cheap.” Human life is not cheap, and since these policies are designed to provide some financial relief for the insured’s beneficiaries, they aren’t cheap either, no matter what the premium is.

There are a few types of term policies, but the most common types are level and decreasing term. Term policies are also convert- ible and renewable, which we will cover, too.

Annually Renewable Term This type of policy, also called yearly renewable term, acts just as the name implies. As the insured gets older, the amount of the premium

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