A term life insurance policy provides a level amount of coverage at a fixed premium for a specified duration, often 10 or 20 years. The policy renews automatically at the end of each 10 or 20-year term with no medical evaluation. However, the premium associated with the new 10 or 20-year term will be significantly higher. The policy has no cash value and expires typically at age 80, which is prior to life expectancy. It is a low-cost option to provide temporary life insurance coverage.
Annual premium for $1M of term-10 coverage (male 45, non-smoker)
Term insurance policies are convertible, typically prior to age 70, to a permanent insurance product offered by the same insurance company. In most cases, this can be done without a medical evaluation. The premiums for the permanent policy will be based on the age of the insured at the time of conversion.
Term insurance is most often used:
- In the family market, when a large amount of coverage is required for a low premium and the need is perceived to be for a 10 to 20-year duration. (For example, when your children are young and the family budget requires a low-cost solution to provide coverage.)
- In the business market, when there is a temporary insurance need. (For example, to satisfy the conditions of a bank loan or a shareholder agreement for a short duration.)