How To Evaluate Term Life Insurance
The simplest type of life insurance to understand and purchase is term life insurance. Term life insurance provides protection for a specific period of time, such as 10, 20 or 30 years.
"Term life insurance works well if you're looking solely for a death benefit to provide income for your beneficiaries," says Kevin Finneran, vice president for Life Product Management for MetLife in Bloomfield, Conn. "It's best suited for people who want insurance coverage for a short duration. For example, if you want to cover your income until you retire and you're 45, then you can purchase a 20-year term policy." (See: " Understanding life insurance table ratings.")
Term vs. permanent life insurance
If you die while your term life policy is in effect, your beneficiaries receive the face value of the policy tax-free. Your insurance coverage ends when the policy expires, so you'll have to purchase a new policy if you still need life insurance.
"The biggest advantage of term life insurance is that it is the cheaper alternative when compared to permanent life insurance," says Finneran. "The trade-off is that you lose the ability to grow cash value in your life insurance policy, which is one advantage of permanent life insurance policies."If you need life insurance for a longer period of time than your initial term, your premium could go up substantially and you may have to undergo a new medical exam, says Finneran. "Permanent life insurance offers protection for the longest time," he says. "However, most term policies offer the option of converting to a permanent policy at some point." Some consumers opt to purchase a term insurance policy to supplement a smaller permanent policy in order to cover a specific need such as a mortgage or college tuition.
Level premiums vs. annual renewable premiumsFinneran says most people prefer level premiums for a term policy so that their premiums stay the same for the entire duration of the policy.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV