Term life is the least expensive form of life insurance because its coverage is limited to a distinct period of time, such as 5, 10, 15, 20, 25 or 30 years.
Term life has the least amount of claims since the length of the term becomes unavailable as you grow older. The death rate during this limited time span represents a young group of people, keeping the risk level low for the insurance company, creating a less expensive program that offers the consumer a smaller premium.
Also, term life insurance has no cash value.
Most term insurance programs offer a conversion period to universal or whole life (permanent plans), based at the age you convert, and an increased premium, based on age of conversion. Since there is no medical underwriting and it can provide coverage beyond the length of the term policy, term life conversion creates an opportunity for individuals that are uninsurable or at the risk of a ratable situation to continue their coverage as a permanent plan.
Term life is typically used:
- As mortgage protection because a mortgage is for a specified period of time.
- As death protection, providing your family in the event of unexpected death during the period of time when your death would jeopardize the financial lifestyle of the family.
- As Business Planning, Buy-Sell and Key-Person agreements
- Term life is not typically used for:
- Retirement Planning
- Estate Tax Planning