Term Life: Protection when it's needed most

Term life insurance is exactly what it sounds like—life insurance for a period of time. It is a very inexpensive way to get a high face value of coverage that lasts 10 or 20 years, depending on what you select. For this reason, it is an ideal way to protect a young family against loss of a home or means of providing for children should the primary wage earner be the victim of an untimely death.

People sometimes purchase term insurance without understanding that it is intended to take care of a temporary need. If you are considering term insurance, you should be aware of the following points. Ask the agent if you aren't sure what the terms will be.

What conversion options are available after the initial term? Some companies have a conversion to individual whole life while others only covert to annually renewable or decreasing term.

Annually renewable means the premium will go up every year after the initial term. A table should be included in the policy that will show you what the premiums will be. Ask the agent how to do the calculations.

Decreasing term means you may be able to keep the same premium, but each year your face value will decrease. Usually your face value will jump up the first year you convert to decreasing term. This is because decreasing term is even cheaper than term. However, once the face value starts dropping, it will drop rapidly, leaving you with as little as a few hundred dollars of death benefit if you live into your late 80s.

A company can only convert to a product it offers. Many companies do not offer whole life. However, if a company does offer whole life and allows you to convert a term to WL, you may be able to convert part of the insurance to WL and keep the rest as term for as long as you can afford it.

You should be able to take a conversion option without providing proof of insurability.

Term policies usually have rider options. A spouse rider should be renewable for the life of the policy, but some are only renewable for 20 years. However, in the case of the latter, the spouse may have the option of converting the rider to individual whole life without proof of insurability. Child riders drop off when each child attains age 18 (21 in some states). The child rider can usually be converted to individual whole life. This rider is really a good buy as it is generally one price regardless of the number of children covered.

A disability rider can be a way of keeping the insurance in force, providing you become disabled. Usually, if you become disabled by a certain age, the company will waive your premium for the duration of the policy. In the case of WL, you keep your insurance to age 100, but the company pays the premium if you became disabled prior to the age of 60 (different companies may use different ages). With term insurance, however, the company will have the option of what conversion to use. You will simply have to ask about company policy. Disability riders are usually very inexpensive, a matter of a couple of dollars per month.

Many term policies have double indemnity riders that double the face value in the event of death by accident.

Term polices do not build cash value.

Term policies are intended to protect people who would be financially devastated by a death of a family member or a business partner. They are temporary protection for a need that will be diminished over time.

If you purchase term insurance, you should either purchase one with a whole life conversion option or purchase a smaller whole life policy that will remain in force and provide protection once the term policy expires.

A final word: don't purchase term insurance by mail order unless you are versed in the language of insurance policies. Companies have their own conversion options, rate charts, rider options and other fine print. Most people cannot read the insurance jargon and understand exactly what they have purchased. Life insurance is one thing you don't want to purchase on the basis of the advertising alone, only to find out years later that you don't have what you intended.