Level Term—at the very least

If money is tight, but you know you need life insurance, you can be sure of one thing. Most agents will figure out a way to come up with a premium quote you can afford. That doesn't mean the agent is dishonest. It means that, for one thing, the agent is trying to make a living. It's no different from any other business in that respect.
request quotes online >>

But, a Herculean attempt to give you the cheapest possible insurance also means that the agent knows life insurance is a critically important purchase—something nearly everyone should have, and that if you can get something you can afford at your current age, upgrades and conversions will be possible later when your income is better.

Because it is the least expensive, many young people—and even some older people opt for Term insurance. Young people do so because they can get high face value policies for very low premiums, thereby protecting their home and family for 20 to 30 years. Older people buy Term either because they can't afford to do anything else, or because they don't expect to outlive it.

Term Life is a good product as long as you understand what you are getting and are prepared to do something different at some point in the future. However, even Term Insurance has some important variations that people often do not understand. At the very least, you want to make sure your Term policy is LEVEL TERM.

What is Level you may ask? It simply means that for the entire period of the Term, whether it be 10, 15, 20 or 30 years, your premium will not go up and your face value will not go down. Your policy will not build cash value, but should have some conversion options without proof of insurability at the end of the term. Some, but not many, companies offer Terms with a conversion to Whole Life. Much more common, however, is a conversion to either a universal or some other form of Term. You want to make sure that you will be able to convert to a universal, if not whole life.

The Term conversion options are Annual Renewable, and Decreasing Term. It's hard to believe, but some companies still sell these two Term variations instead of selling you a Level Term. Two or three very well known companies today are offering seniors a Term policy which will expire in 20 years or when the insured is 80 years old, whichever comes first. The person may get the Term cheaper than anyone else can sell it for the first year. The premium goes up by about 30% in the second year, and may double or more every five years thereafter. This is nothing but a variation on the annually renewable term. It's better to pay a few dollars more at the beginning than end up with something you have to let lapse a few years down the road.

The other Term option is Decreasing Term which is even cheaper than Level Term. You pay the same premium for a set number of years, but each year the actual face value that would be paid to your beneficiary drops. This allows you to get a fairly high face value for the first two or three years, but at the end of the term, the policy might be worth a few hundred dollars in spite of the thousands you may have paid into it. This type of policy is what the banks gave for mortgage life insurance at one time, and some still do. The idea was that as your mortgage dropped, the insurance dropped also, since you didn't need as much to pay off the loan. It's much better to have level term—even if you are using it to secure some type of debt. If something happens to you, your beneficiary will get the face value, be able to pay off the debt, and still have some money for final expenses. request rates online >>