Term Insurance provides protection for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 15, 20 and 30 years or to a specified age as high as 95.  Policies are sold with various premium guarantees.  The longer the guarantee, the higher the initial premium.  If you die during the term period, the company will pay the face amount of the policy to your beneficiary.  If you live beyond the term period you had selected, no benefit is payable.  As a rule, term policies offer a death benefit with no savings element or cash value.

Premiums are locked in for the specified period of time under the policy terms.  The premiums you pay for term insurance are lower at the earlier ages as compared with the premium you pay for permanent insurance, but term rates rise as you grow older.  Term plans may be “convertible” to a permanent plan of insurance.  The coverage can be “level” providing the same benefit until the policy expires or you can have “decreasing” coverage during the term period with the premiums remaining the same.  If you do not pay the premium for your term insurance policy, it will generally lapse without cash value, as compared to a permanent type of policy that has a cash value component.  Currently, term insurance rates are very competitive and among the lowest historically experienced.

It should be noted that it is a widely held belief that term insurance is the least expensive pure life insurance coverage available.  One needs to review the policy terms carefully to decide which term life options are suitable to meet your particular circumstances.

While term insurance is designed to provide protection for a specified time period, permanent insurance is designed to provide coverage for your entire lifetime.  To keep the premium rate level, the premium at the younger ages exceeds the actual cost of protection.  This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium. Under some policies, premiums are required to be paid for a set number of years.  Under other policies, premiums are paid throughout the policyholder’s lifetime.  The insurance company invests the excess premium dollars.

This type of policy, which is sometimes called cash value life insurance, generates a savings element.  Cash values are critical to a permanent life insurance policy.  The size of the cash value build-up differs from company to company.  Sometimes, there is no correlation between the size of the cash value and the premiums paid.  It is the cash vale of the policy that can be accessed while the policyholder is alive.

The policy’s essential elements consist of the premium payable each year, the death benefits payable to the beneficiary and the cash surrender value the policyholder would receive if the policy is surrendered prior to death.  You may make a loan against the cash value of the policy at a specified rate of interest or a variable rate if interest but such outstanding loans, if not repaid, will reduce the death benefit.