Joe Marullo

Joe Marullo Insurance & Retirement Services

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Term life insurance is the simplest form of life insurance.

It offers death protection insurance at a fixed payment rate for a limited, specific period of time. If you die within the time period defined in the terms, the insurance company will pay your beneficiaries the face value of your policy.

The cost and availability of the type of life insurance that is appropriate for you depend on factors such as age, health, and the type and amount of insurance you need. Term life insurance is often less expensive than other types of insurance, especially when the insurance is purchased while the policyholder is younger. Because of its affordability, it can be a good choice for short-range goals, such as until your youngest child finishes college, while you pay off a loan, extra insurance protection during child-raising years, or until you can afford a more permanent type of life insurance.

Term life insurance is different from permanent life insurance, such as whole life, universal life, and variable universal life insurance. These types of permanent life insurance guarantee coverage at fixed premiums for the lifetime of the covered individual. Also, unlike other types of life insurance, term insurance does not accumulate cash value. All the premiums paid are used to cover the cost of insurance protection, and you don't receive a refund at the end of the policy period when the policy expires.

The main disadvantage of term insurance is that your premiums increase every time coverage is renewed because the chance of dying increases with age. As the likelihood of your death increases, the insurance company's risk increases, and it becomes more likely the insurance company will have to pay a death benefit. As a result, term insurance can become too expensive at the time when you need it most — in your later years. However, renewable life insurance is available, in which the premium paid each year remains the same for the duration of the contract.

Options include 5-, 10-, 20-, and 30-year level terms, or even a level term payable to age 65 or older.

Just as in most financial decisions, there are expenses associated with purchasing life insurance. Contract limitations, fees, and charges can include mortality and expense charges and possible tax implications. In most cases, if the contract owner surrenders the policy during the contract's early years, surrender charges are assessed. Any guarantees are contingent on the claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

This article is not intended to be tax or legal advice, and the information in it may not be relied on to avoid federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

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