GUARDING AGAINST THE FINANCIAL PITFALLS OF DEATH
increases. Therefore, the policy may be relatively inexpensive when the insured is younger, but as the person ages, the cost of the pre- mium will increase dramatically.
Level Term Level term policies are also commonly referred to as “straight term” policies because the amount of coverage doesn’t change as long as the policy is in force. That is, if you purchase a 10-year level term policy with a $100,000 death benefit, it will remain a $100,000 death benefit from day one to the very last day of the policy. These policies are written for a given number of years, such as 1, 5, 10, or more.
The premium amount for a level term policy remains the same for the life of the initial term. So, by purchasing a 15-year term pol- icy, you will pay the same premium for those 15 years. However, should you decide to renew the policy, you will see an increase in your premium because you are now 15 years older. Thus, as you renew your term policy, the premiums will continue to increase. Some term policies will allow you to renew for the exact same time period as the initial period, while others will allow you to renew on an annual basis once the original time frame has expired. The pre- mium price for level term is more stable than for annually renewable term, but it will also be more expensive.
Decreasing Term Sometimes a term policy will keep a level premium throughout all periods of coverage, but the death benefit will decrease. These are decreasing term policies. These are used when the amount of cover- age needed diminishes over time. For instance, you and your spouse purchase a home with a 30-year mortgage. While you both work, your spouse doesn’t earn as much money as you and is concerned that if something were to happen to you, he or she would be unable to continue with the mortgage payments. In this case, you could pur- chase a decreasing term policy for 30 years. Because the amount owed on the house decreases every year, you wouldn’t need a level term policy that would carry the same death benefit throughout the whole 30 years. Rather, your decreasing term policy could coincide with how your mortgage decreases.