What You Should Know about Level Term Life Insurance

As you approach retirement, you may still have reasons to own life insurance at least for a while. You might consider 'level term' life insurance as an option. Here's what you should know.

The older you get the more life insurance costs since your chance of dying increases - and more so the older you are. But if you're healthy and you qualify, level term life insurance may be the way to go. Be sure you understand what it's all about.

Level term life insurance has premiums that are designed to remain the same for a period of 5, 10, 15, 20, 25, or even 30 years. This type of term life insurance is extremely popular because it is comparatively inexpensive while providing short to long-term coverage.

The premium you pay each year for level term life insurance remains the same (i.e. level) over the period you choose. That's because payments are based on the total cost of each year's annual renewable term rates throughout the full term of your payments and adjusted for the time value money. So the older, more expensive to insure years during the term are averaged with the younger, less expensive years to produce the level premium you pay throughout the term.

Therefore, the longer the term the premium is level (i.e. remains the same), the higher the premium costs to the insured. And the older you are when you begin your level term insurance, the more costly will be your level premiums.

*Renewal Option:

Most level term programs include a renewal option which allows the insured to renew for a maximum guaranteed rate if the insured period needs to be extended. This clause is typically only revoked if the health of the insured deteriorates significantly during the term.

*Ask questions:

Read the fine print and all disclaimers in whatever policy you consider - always. Some guarantees about the level premiums are simply not honored in the way you think they should be. So, ask questions if you don't understand the terms of the policy you're considering.

And make sure you purchase from a top rated (A to A+) company. You want to be sure your company can deliver the benefits of your policy when you need them.

*Option to convert to a permanent policy:

Many term policies offer a conversion privilege to permanent life within a certain period of years. During this allotted time, you can convert to a permanent policy regardless of your health condition at the time of conversion.

Those conversions that don't require proof of insurability can give you the opportunity to decide later about buying permanent life. Some insurance carriers will allow conversions until the age of 75. The coverage would be equal to or lesser than the term face value already in place.

It's always smart to compare various term life policies to see which carriers 'offer conversions' and the stipulations attached to their policies. Of course the older you get the less benefit you'll receive for your premium dollars.

The best policy is to understand precisely what you must have insurance for - and then get only that amount.


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Shane Flait helps you with your financial legal, tax, and retirement goals.
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