Let’s take a simple, easy to understand look at what is out there. First, we have “term life insurance”.
This is the vanilla of the life insurance. Simple to dig, the cheapest and most popular. You get a life insurance contract for 10-30 years in 5 or 10-year increments. If you die within the term period, a lot of people (I hope) will be sad and miss you. And yes, your beneficiary will get a check for what is called the “face amount” of the policy, providing you were nice enough to pay your “level premium” every month. Some variations include an
Some variations include an “increasing term”, where the face amount goes up and usually the premium goes up as well. Why buy it? say you. Well, increasing term provides the option of increasing the level of coverage either at set intervals or specific events such as marriage or the birth of a child. Your premiums may increase for additional cover, but they are based on your health at the start of the policy, even if it has gone down the drain since. Of course it is more expensive than the vanilla term.
A “decreasing term”, where the face amount goes down a bit every year, while the monthly premium stays the same. The theory behind decreasing term insurance holds that a person’s need for high levels of insurance decreases with age and certain liabilities no longer exist. The death benefit of such a policy is designed to match the amortization schedule of a home mortgage or any other personal debt that may be too large to be paid from the household income in the event of a wage earner’s death.
By now you see that after the said term is up and if you are still around, no more coverage for you my man (or woman). Of course you could have bought a “return of premium” rider and get most of the premiums you paid back, but it is a very expensive rider. Or, you could convert your term policy to a permanent policy, at your older age, providing you can get a part time job to pay for it!!
In general, a term life policy is the most popular, affordable and simple to understand type of policy. It is also the most sold type of policy and as you may have guessed, the type of policy with the least claims.