Term Life Insurance: know the different types of policies available

Most people understand that when they purchase Term life insurance, they are getting something that will cover them for a limited period of time. The insurance has no cash value, but can be purchased at low cost in very high face amounts. At the end of the time period, the police must be converted—usually within 30 days—or it will expire and leave the insured with no insurance.
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Several different types of term conversions exist, some of which are also available as initial insurance policies. The most common is Annually (or Annual) Renewable Term, usually abbreviated ART.

Annual Renewably Term is a type of policy that keeps a level face value, but has a periodic increase which may be yearly, every five years, or—in rare instances—every 10 years. These increases become increasingly larger, sometimes forcing a person to reduce the face value in order to keep a cheaper premium. They do have their place, however. If a person has health problems, the ART is worth keeping because it is not subject to medical underwriting once the initial policy has been written. Also, some companies will allow you to lower the face value on the initial policy to as little as $1,000, but then purchase a term rider that will last another 10 years. The rider may or may not be subject to medical underwriting, depending on company procedures and requirements. ART policies also have riders for children and spouses, as well as disability waivers available.
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Decreasing Term was once common as mortgage life insurance and is still available. It is even less expensive than level Term because as the years go on, the company's risk becomes less. During the term, you pay a level premium, but each year the face value of the policy decreases. Thus, if you live to be in your 80s or 90s, you may end up with a policy that pays only a few hundred dollars even though you have paid the same premium throughout. Decreasing Term is best used to protect a loan or business. If something happens to the insured during the early years of the policy, a very high face value will be paid. In later years, the indebtedness will drop, so the insured will not need as much protection.

Level Term is what most people purchase when they take out Term life insurance. You can choose the time period, from 10 to 20 years, when the insurance will be in force. If you die in that time, your insurance will pay the face value. You have no cash value and cannot borrow against the policy, but the premium is very low, and the policy can be renewed or converted (at an increased premium) at the end of the initial period. Most Term policies have a wide variety of riders available. A word to the wise: If you take out a Term policy, be sure to include a waiver of cost of insurance. It adds only couple dollars to your policy, but it means that if you should become disabled before your term expires—or before the age of 65, whichever comes first—the company will pay to renew your policy for the rest of your life. In these circumstances, a term becomes as good as whole life, minus the cash value. It's a feature well worth including.
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