Term life insurance typically provides a specified level death benefit for a stated period of time where the premium often remains the same throughout that time. After that period ends, the coverage can often be continued but at a much higher, usually non-competitive premium. Most insured’s will live beyond the initial term period and lapse coverage (cancel for non-payment of premium) at that point. Term premium is often much lower than premium for a similar permanent death benefit, making it a useful short-term protection tool for those that pass away prematurely (or trigger another benefit of the insurance policy) while the policy is in force.
Some Term can be converted to permanent without evidence of insurability, allowing the insured to switch to permanent coverage even if their health has declined since purchase. This is useful for insureds who develop an illness or health impairment after the Term policy is issued. Not all conversion privileges are the same and many carriers limit the type of permanent policy available, in some cases greatly reducing the value of a conversion benefit. Conversely, carriers with quality conversion features can be more valuable to a policy owner.
Term insurance offers lower cost, current peace of mind and it can become an invaluable asset when a claim occurs during the coverage period, but it can fail to provide coverage for many insured’s who would otherwise benefit down the road when they pass near or after life expectancy. Many policy owners underestimate how long they will need the coverage and end up having to buy a higher premium policy after the initial term policy expires, provided they are still eligible to get coverage at that time. Some buyers choose to ladder multiple Term policies with different term lengths to ensure they still have some coverage further down the road, while others pair their Term with a permanent policy for additional benefits.